Guest Post from Amy Collett of bizwell.org
The Senior’s Guide to House Flipping Successfully
House flipping is a profitable business, going by ATTOM findings: The average gross profit per flip was $66,300 in 2020, with an astounding ROI of 40%. If you’re a senior looking for a steady income source post-retirement, house flipping might fit the bill. In this article, Meghan Carroll takes you through everything you need to know to house flip successfully:
There will be some risk
House flipping is risky. You must understand the challenges involved before you commit to the endeavor. Some problems you may encounter are market downturns, high interest rates, bad valuations, surprise repairs, truant weather, and intractable contractors. These are by no means insurmountable challenges — but you should keep them in mind.
Know your market
House flipping is all about location — flipping a house in the middle of nowhere won’t get you the same returns as flipping prime real estate. Before you get into the game, consider your surroundings. Are there any flip-worthy properties in your neighborhood? Is the area expanding and are people moving in? Are contractors readily available and affordable? Market conditions will determine your eventual profit.
You will need skills
It’s not enough just to evaluate a property’s potential returns — you have to do the flip. That means buying the property, making it sales-worthy, and then finally finding buyers for it. Ideally, you should have a background in construction, repair, and maintenance, so you can supervise the upgrade of the property personally. If not, you will need to find contractors you trust ready and willing to do the work for you in a short, fixed time frame. In short, you need to be ready and willing to develop serious skills to be successful.
Cash is better than credit
Flipping houses on credit won’t net you as high returns as flipping on cash. If you have enough cash to pay for the house and all the upgrades, you can expect a tidy profit. Just like with every business, the more capital you can access, the higher your potential returns. With financing, you have to factor in mortgage payments, which can be to the tune of $10,000 to $20,000 (or more) — and that’s assuming you make a profit. But if you have to, you could still potentially flip a house on a loan.
Keep an eye on your financials
As a rule of thumb, you should pay a maximum of 70 percent of a home’s ARV (after repair value) minus repairs. This allows you to account for repair costs and still turn a tidy profit. Essentially, if a home is worth $100,000 after repairs and needs $25,000 worth of repairs, you should be willing to pay a maximum of $45,000 for it.
Calculations are hard. Fortunately, you can use financial tools to run them. Consultants need a flexible accounting application in this line of work and often prefer QuickBooks Online Advanced. Besides calculations, the platform allows you to keep a close eye on your cash flow through detailed yet novice-friendly balance sheets and income statements. It’s a good way to automate your workflow and make sure your budding business is profitable.
Keep your emotional distance
Don’t get too attached to a house you want to flip. Many amateur flippers make the mistake of loving a particular house a little too much. They then offer more than they should for it upfront or spend an excessive amount of time and money on improving it. The result is wasted time and energy and usually a net loss. Develop a detached, strategic mindset instead. You’re in it to win it — nothing more and nothing less.
Be prepared for the competition. Shows like Flip or Flop have made house flipping seem like a glamorous, easy way to make money. But like every serious business, you will have to spend time, money, and energy to get somewhere. If you do put in the effort, you can expect handsome returns, especially with the housing market witnessing a boom. Meghan can help you from finding the right properties to flip to selling them. Get in touch! 732-508-7402
Image via Unsplash
