Get Rich by Buying and Flipping Real Estate

Buying and flipping real estate is a popular, though high-risk, way to make money. If you purchase a home at a good price, make some aesthetically-appealing renovations, and sell the house at a higher price than you paid, you can easily make quite a lot of money. However, house flipping is by no means an easy "get rich quick" plan. It takes a lot of work, a lot of investments, and even with a great house you may have a hard time selling the finished product simply due to the fluctuating housing market.

Steps

Evaluating Your Capabilities

1. Assess your time commitment. Flipping properties is not usually a part-time gig. Searching for, renovating, and then selling properties require a lot of scheduling and working during the workweek to accomplish. If you can't make flipping a full-time job, you are probably not ready for it.
2. Evaluate your own renovation skills. The best flippers are able to complete basic renovation tasks, like fixing holes in walls or replacing a toilet, themselves. You will save a lot of money by not waiting on others to complete these tasks for you. In addition, there are some circumstances where things need to be fixed immediately, so not having to wait on others can be a valuable asset. Saving money in this way can only help your bottom line. In some cases, it may mean the difference between making a sale and having to wait for another buyer. Consider your own ability to perform these tasks before deciding if property flipping is right for you.
3. Assess your ability to finance a flip. Flipping real estate requires that you buy the property first and then pay your own way to renovate it, so you'll need the financing to do so. Banks are generally not willing to make unsecured loans for this purpose, so you'll need savings, collateral, or both to afford each flip project. If you have enough in savings, use that, but if not, you'll need to use a collateralized loan like a second mortgage or home equity line of credit (HELOC). Remember that you'll also need money to renovate and hold the property until sale in addition to the sale price of the property.
   • HELOCs and second mortgages carry the risk that you will lose your home if you default on the loan.
4. Make sure you have real estate market knowledge. You will need to know the real estate market very well to be a successful flipper. Not only will you need the skill to identify bargain properties, but you will also need to know when to buy and sell, and where to do so, so that you get the most return on your money in the smallest amount of time. Otherwise, you will be stuck with a loss from the sale or from holding the property for too long. Gain a deep knowledge of the real estate market in your area by studying local real estate listing, working in the industry, or by consulting with local real estate experts.

Buying a Fixer-Upper

1. Find cheap real estate. You can look for cheap real estate in your local newspaper, through online listings, or by searching out delinquent mortgages online. The key to flipping real estate is finding a decent, repairable house at a low enough price to be worth your time, effort, and money.
   • Common sources of cheap real estate include HUD foreclosures, regular foreclosure sales, and short sales. You can also try searching for death notices and divorce settlements, as these tend to precede quick housing sales.
2. Research the neighborhood. In addition to neighborhood research that will determine the average market value of area homes, it's also important to know about the area itself. You'll want to look at community factors like the quality of schools in the area, access to public transportation (if relevant to your community), and other aspects that will determine whether that property will be appealing to, say, a young family with kids versus a retired couple looking to settle down.
   • The neighborhood helps set the market for your potential home, and you'll want to know whether the area already has rising prices, is in a transitional phase, or has relatively low prices. You can determine this by asking locals or talking to a real estate agent who knows the neighborhood.
3. Assess the property. Before you finalize the purchase, you'll want to take a look around and have a contractor and/or building inspector come with you. A contractor can give you an estimate on how much the repairs and renovations will cost. A building inspector will know whether costly work like foundation repairs may be necessary, as these kinds of repairs can get incredibly expensive and will easily put you over your budget.
   • Many properties listed at auctions are sold as "sight-unseen," meaning you won't get to tour the property. These investments can be exceptionally risky, so you may want to avoid scenarios in which you cannot assess the property in person.
   • Find contractors and inspectors by searching online, or talk to someone who works in real estate. They may know a reliable contractor or inspector who does good work and will give you an honest appraisal.
   • Ask the inspector about the state of the property's major systems (electrical system, plumbing system, foundation and roof condition, etc.). These may be the most costly elements to repair, so it's best to find out in advance whether or not these major systems are in good shape.
   • Ask the contractor what the total investment looks like. This will help give you a decent idea of what kind of repairs you would need if you purchased that home.
4. Evaluate the costs and value. Before you purchase any property, it's important to know your budget and be aware of the anticipated costs. To do this, you'll need to evaluate the property to assess how extensive the repairs will be. Then work backwards to compare the after-repair value (ARV) of that property with the estimated costs and repairs you'll need to put in.
   • Search online or talk to a local realtor to learn the market value of other homes in the neighborhood you're thinking of buying in. This will give you an idea of the ARV, which will help you decide whether or not your investment will pay off.
   • You can use an online remodeling calculator like the one at http://www.remodelingcalculator.org/. This tool will ask you for some basic information like the dimensions of the house and the extent of renovations you're willing to make, then give you a very rough estimate.
5. Factor in carrying costs. In addition to the costs of equipment, labor, and, of course, the property itself, there are numerous other costs to factor in as you decide on a property. The costs associated with owning a property that you haven't sold are generally referred to as carrying costs. These may include property taxes, condo or association fees, insurance, and utilities like electric, gas, and water services. You'll also have to pay a realtor for his or her services, which can average around five to ten percent of the sale price of that property.
   • Remember that the longer you hold a piece of property without successfully flipping it, the more your carrying costs will add up.
   • Not all homes sell right away. Even an attractive home in a hot area may be on the market for a while, which can add up costs very quickly. You may want to have a backup plan, including renting the property or living there yourself, just in case the sale doesn't go through. Some real estate experts advise only going through with a purchase if you are willing/able to hold onto the home and live in it or rent it out for at least five years, in case selling it doesn't go as planned.
6. Calculate your maximum offer price to purchase the house. This can be calculated by starting with the expected retail price after purchasing and remodeling. Then, add in all closing costs. Find your maximum offer price by taking this amount and then subtracting the costs of remodeling, interest on loans, and desired profit. This figure represents the most you would be willing to pay for property and can be used in negotiations.
7. Finalize the purchase. In addition to all the other costs involved in buying, rehabbing, and selling a home, you'll have to also consider the financing costs. Will you need to take out a loan to complete the purchase? If so, you'll have to shop around to find the best interest rate on a home loan. If you find a good loan offer or have secured enough capital to make the purchase, and if everything else checks out and fits within your budget, then you're ready to make an offer to that property's real estate agent.

Remodeling the Kitchen

1. Estimate the benefit. Your first step should be determining how much a remodeled kitchen would add to the sales price. If the remodel costs exceed the benefit, the renovation should not be done. Knowing how much value will be added can be deduced from studying other, similar homes in the area with or without remodeled kitchens and their recent sale prices.
2. Work with what you've got. You can radically revamp a kitchen without going broke if you plan carefully and work with the kitchen you've purchased. The easiest way to maximize kitchen efficiency (and save your budget) is to remodel without changing the location of plumbing and gas lines. That way, you can change the look and feel of the kitchen without radically altering the layout.
3. Give a wide berth. Wide walkways make a kitchen feel accessible and easy to work in. If you're planning a total kitchen revamp, plan your layout to accommodate for walking space and room for residents to cook.
   • Paths throughout the main body of the kitchen should be at least 36 inches wide.
   • Paths that pass the stove and counter should be 42 inches wide to accommodate one cook, or 48 inches wide to accommodate two cooks.
4. Keep corners clear. Appliances and cabinets in corners can be tricky. You have to accommodate clearance for doors to swing open and shut, which can leave the corners of the kitchen feeling cluttered and busy. For a smooth, open kitchen, plan for adequate space to swing cabinet doors open, and keep appliances away from the corners entirely.
   • Make sure that a cabinet door on one side of the corner will not slam into a cabinet door on the other side of the corner. This can generally be avoided by ensuring that cabinet doors open in the same direction and are properly spaced apart (depending on the size and clearance of each door).
5. Install backsplash tiles. Tiles make a great backsplash surface on the walls above/behind counter space and stove tops. You can customize your tiles with colors, patterns, and even materials.
   • Ceramic tiles are easy to clean and can withstand moisture and heat, but they tend to be more expensive than some other tiling options.
   • Subway tiles tend to match easily with any kitchen style, and are often cheaper than other tiling options.
   • Stainless steel makes an elegant backsplash material that's very easy to clean. It makes any kitchen look sleek and modern, but can be very expensive.
   • You should also study renovation and housing publications to determine which backsplash materials are fashionable at the moment. This can help you make the right choice for making your kitchen appear "current."
6. Consider including an island. Islands allow for kitchens to feel more open and functional. An island can house a stove, counters, storage space, eating space, or any combination of the above.
   • Make sure the island mirrors the kitchen's dimensions. For example, if the kitchen is long and narrow, a long, narrow island will match the room best.
   • If installing a multi-use island, look for an island that has multiple levels/tiers. That way your dining space is separate from where food will be prepared or stored.
   • Cabinets below the island counter make an excellent storage space. You can easily tuck pots and pans or even dry goods under the island to free up counter space.
   • If you're doing your own work and you don't have extensive building experience, you can buy a pre-made kitchen island from a building supply store, or find an old, sturdy wooden cabinet and refinish it. Scrape off old paint and customize the cabinet with a wood stain or paint scheme to match the rest of the kitchen. Or opt for a new, bold color to make the new island stand out.
7. Make sure appliances are up to par. If the existing appliances in the kitchen are old, you may want to consider replacing them. Homebuyers expect the appliance quality to be on par with the quality of the home. Look at similarly-priced homes that have recently sold in the area. Do they have new appliances? If so, you may have difficulty selling the home without them. Appliances may include refrigerators, stove tops, ovens, and microwaves.

Updating the Bathroom

1. Calculate the potential return before renovating. As with kitchen renovations, bathroom renovations can add a significant boost to the home's value. However, this boost will be negated if the cost of the remodel is even greater. Study similar homes sold nearby to assess the amount gained by its having renovated bathrooms. Then, estimate your own renovation costs. If the costs are greater than the gain, reduce the extent of your renovations or abandon the bathroom remodel.
2. Choose an all-white design. White walls, counters, and tiles can make the bathroom feel more spacious and clean. It can also make an otherwise plain-looking room appear more elegant and appealing, as well as neutral - which is important, since you want potential buyers to be able to see themselves living there.
3. Maximize natural light. If the bathroom has at least one window, you can make the room feel brighter and more inviting by making subtle changes to maximize the light. Try hanging side mirrors to reflect the window's natural light and allow for easy grooming.
4. Choose a tile material. Ceramic tiling is much cheaper than more expensive materials like marble, but can be purchased with patterns that resemble marble. You can choose predominantly white faux-marble ceramic tiles for a clean, elegant look. However, you need to understand buyers' expectation to make right decision about materials. Higher-priced homes will have more discerning buyers who will require marble or stone tile.
5. Use elegant shower tiles. You can choose lower-cost ceramic tiles for the floor, but when it comes to re-tiling the shower or bath stall you may want to opt for a more elegant tile. Marble, though more expensive, can radically transform any shower stall and create a spa-like atmosphere.
   • You also need to consider whether to separate tub and shower or eliminate one of the other. This, again, will depend upon the expectations of your buyers.

Making Other Modifications

1. Repaint with neutral colors. When you paint your house, it's important to use neutral colors. Colors that are too bold, too dark, or too bland may work for one isolated room, but overall the majority of rooms should be a color that's right in the middle of the spectrum. Try a cream, tan, or khaki-colored paint to make the house neutral to the eye.
2. Spruce up the interior. In addition to the kitchen and bathroom, you'll probably need to make some repairs to the rest of the house. Patch up any holes, repaint every room (no matter the room's condition), replace old or worn-out carpeting, and replace light fixtures and cabinet hardware. The goal is to make the house look as close to new as possible, while still staying within your budget.
   • You'll probably want to keep furniture out, but you'll still need to use something to draw a viewer's focus. Try putting a large plant (like a silk, artificial tree or shrub) in the most visible corner of the room.
   • Consider "staging" (creating a lived-in look with furniture and decorations) to make the home more attractive.
   • In rooms that lack natural light, consider putting a free-standing lamp in a corner to brighten the space.
   • Add little splashes of color by placing brightly-colored accessories to contrast with the room's neutral color. Try arranging red or burgundy hand towels around the house, and leave a vase with red-colored flowers somewhere prominently visible.
   • Consider showing before and after pictures to highlight just how radical a transformation the house has undergone.
3. Keep the yard tidy. An unkempt or otherwise messy yard can turn off buyers before they even tour the inside of the house. It's important to keep the yard well-groomed and watered, and to maintain the exterior of the house.
   • Touch up any chipped paint.
   • Keep the yard looking pristine. You want the entire property to be appealing, not just the interior. If the exterior looks unkempt, many prospective buyers won't even want to see the interior.
   • Consider professional landscaping to maximize curb appeal.

Selling the House

1. Don't rush it. It's important not to hold onto a piece of property for too long, as you'll be saddled with taxes and carrying costs. But if you rush to get a flipped house on the market too quickly, you run the risk of it not being at its full potential. You'll need to decide what's right for you and your budget, but the key lies in balancing costs with renovations to make the house as appealing within your budget as possible.
2. Get a qualified mortgage broker. If you don't enlist the services of a mortgage broker, you run the risk of wasting a lot of time on unqualified buyers. Hiring a mortgage broker lets you know that anyone who pursues the property will be pre-qualified, which will help cut down on the time your property is on the market.
   • Mortgage brokers act as a middleman to help facilitate transactions. They determine a potential buyer's eligibility for a loan and can also help that buyer find a loan, though mortgage brokers do not directly lend money themselves.
   • Search for mortgage brokers online. You can compare rates and find a broker who will work within your budget by shopping around before you choose a broker.
3. Work with a real estate agent. An agent will help you get a fair cost for your property and can facilitate all of the sales details. Choosing the right agent will help ensure that your sale goes smoothly and quickly. Even though you'll have to pay for an agent's services, it may pay off to reduce the carrying costs and taxes you'll accrue by keeping your house for an extended length of time.
   • Get listing presentations from at least three agents. That can help you set the best price for your property and compare the sales abilities of multiple agents.
   • If an agent suggests he or she can get you an exceptionally high price for the property, it may be a red flag. Extremely high sales prices can turn off potential buyers before they even see the property.
   • Look for an agent who works in real estate full time. That way you know that the agent is available to show the property any time of day, which can help maximize your chances of a fast sale.
   • Look for a reasonable commission. Most sales commissions for real estate agents fall between five and seven percent of the sales price, which is split between your selling agent and the buyer's agent. But an exceptionally low commission may push potential buyers away, as the commission may not be worth the buying agent's effort to show the property. Choose a fair commission to ensure that your property attracts your potential buyers' agents.
4. Anticipate sales costs. Selling a house can be very expensive. In addition to the costs of repairs and hiring a real estate agent, you'll need to pay closing costs and capital gains taxes. When all is said and done, the total costs associated with selling a home can add up to 10 percent of the property's sale price.
   • Make sure you factor sales costs into your budget. All of your expenses will add up quickly, so it's important to be mindful of how much you're spending through every step of the house-flipping process.

Tips

• Read and study all the courses you can on flipping homes and buying apartments with little to no money down. You may want to begin with rehabbing rental properties on a smaller scale (apartments or condos) before trying to flip a house.

Warnings

• Consider the housing market in your location BEFORE you begin this plan. Currently, the housing market is slowing (to a near standstill) in many locations, and properties listed in these regions may end up sitting on the market for months. If your location is one of these slowing markets you'll have a GREAT opportunity to buy a house at a bargain, but you'll have a tough time trying to sell it.
• Highly leveraged properties are some of the higher risk properties. Do all the research you can to determine if leveraging your properties is the best strategy for you.

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