To Flip or Not To Flip?
Are you an HGTV addict? Can you NOT get enough of all the home reno and house flip shows? They make it look easy, don’t they? Buy it. Renovate it. Sell it. Pocket a tidy profit. Boom! Done. Doesn’t even seem like they sweat that much. Or worry about selling it.
We are here to remind you that reality television is NOT reality!! (And yes, the Kardashians are scripted!!) We get calls on a regular basis from clients who want to jump into house flipping to make a ‘quick’ buck.
Bottom line: we have 3 important questions for you:
1) Have you ever done a flip before?
2) Do you have a Contractor or Construction Crew that you have worked with in the past?
3) Do you have enough money?
And most of the time, the answer to all 3 questions is NO. Reality Check Time!!!
But should you still want to proceed, there are 3 keys to a successful flip.
1) A great Agent who understands pricing, value, location and sellability
2) A clear understanding of your budget
3) A Contractor you trust
And then there is the real question. Are you doing a “Lipstick Flip” or a “Concept Flip”??
A Lipstick Flip is a small job. The reno’s are more cosmetic in nature – paint, fixtures, carpeting, hardwood flooring, small kitchen or bathroom update. (For example, if you paid $750,000, you would expect to invest $75 – 100,000.) It is very difficult to make much money with a Lipstick Flip. If your Agent finds you the right property, you have to be ready to buy ASAP, and ready to put your Contractor to work so you will not carry the property very long.
A Concept Flip is where the real Flip money is. This is a Flip that involves a rebuild or a reconfiguration. (For example, if you paid $1.2 million, you would expect to invest $4-500,000 in the reno.) You will definitely get a better ROI, but you MUST have the funds. Location, quality of build, timeframe and season are crucial. Typically, you need to set out your financial parameters to your Agent so that they can go out and FIND the right property as it is rare the perfect Flip will come up on MLS (although not impossible).
It is also key that your Agent has ‘vision’ ~ that is, the ability to visualize the ‘what could be’s’ in a property. In a perfect world, the Agent and the Contractor/Builder will both have a good understanding of design and be on the same page. Once your Agent has found a good home in a great location with good bones and plenty of upside, you have to be prepared to act FAST (particularly if it is through MLS).
Now to the numbers. To make money on a Flip, you cannot overpay for the original home (that’s where your Realtor’s skills, knowledge and instincts come in) and you MUST have a Contractor who delivers on budget. Everything needs to be budgeted pre-construction and you need to avoid costly mid-construction changes.
Flipping homes is NOT an easy task, particularly in our current market. It is a big financial risk with many factors to consider. Do your research and take some time to consider such an undertaking. Then, meet with Realtors like Neglia Garami who are experienced in this business segment and have undertaken profitable Flips both for Clients and for themselves. Together, we will come up with a plan for your Flip and ensure it’s a successful one!!
Remember, Flipping is not for the faint of heart…or the faint of wallet!!