This is the first in a series of blog posts where I want to focus on flipping properties. I define flipping as buying homes, renovating and then selling for a profit. There are good profits in this activity, but there are also a number of pitfalls and I hope that these posts will help some would-be flippers avoid problems, prevent loss and increase profits. Since I began working in the real estate industry, my life has taken a number of turns; I have experiences, both good and bad, and have learned many lessons along the way. Through research and an understanding of the business, I have built on my knowledge and I feel that I can help people by sharing what I have learned.
At the start of my quest in real estate I visited with a very successful businessman who made his living flipping and renting homes he had renovated. Unfortunately, I walked away from that opportunity for an education thinking I would be OK just finding a property and fixing it up. Had I paid closer attention to what he was doing, I would have been more successful on my first attempt.
My expert has about 20 homes in his possession at any one time and lives at the edge of his line of credit. From the outside looking in, it looks risky, but he is able to mitigate his risk by sticking closely to the basic principle I am going to share with you in this post. If you pay attention to this lesson, you will make more money flipping houses!
Before you begin down the road to fun and profit, you need to define what it is you are going to do. Today’s blog is all about the word “SPECIALIZE”. There are many different avenues you can follow when you flip properties and by focusing on a specialty you will learn exactly what you need to do to make money, then profit many times over from that knowledge.
Going back to my expert, he specializes in single family homes in a specific price range that are in a certain group of neighbourhoods. He knows how and when to buy and how much profit can be realized from each home before he buys it. He understands the buyers’ needs and wants in his neighbourhoods, the best price range for maximum profits and which streets are better choices. He has become so familiar with his product that he has all but eliminated his risk of loss.
When you have specific knowledge of a niche market and understand the needs of the buyers in that market, you will significantly reduce the risk of errors and increase your profits. If you are flipping in a neighbourhood that does not have hardwood floors as a standard in most homes, you will not profit from putting hardwood in your renovations. In fact, those hard wood floors will end up costing you money and eating into your profits. Likewise, if top of the line appliances are not an expectation in your neighbourhood, you would be wasting money putting top appliances in your renovation package. The list goes on and on. You could be spending money unnecessarily in your renovations and losing out at the time of sale. On the other side of the coin, your neighbourhood may demand hardwood, completely modernized kitchens and baths as well as open concept living. If you don’t provide these in your renovations, you homes will take longer to sell and sell for less money. Knowing and understanding your buyers helps you achieve the maximum profit from each project.
I know of a home in an estate area that has been sitting on the market now for several months. It is on an incredible view lot with a stunning mountain view. Based on its size and location, it is priced right for the neighbourhood. I believe it is not selling because the owner decided to cut costs on the renovation. Laminate floors, some obvious DIY finishing and low end appliances all contribute to the problem. Buyers are looking for hardwood floors, top craftsmanship and high end appliances in this estate area and are immediately disappointed when they walk in the door. No matter how great the view is, they can’t get past the poor quality of the floor they are standing on. In the buyer’s mind all of these deficiencies bring into question the quality of the home in general.
So many people decide they are going to flip a house and do not realize this most basic principle. They buy a home and go to work renovating without any understanding of the market they are working in. They cut corners in their spending or put too much time and money into their projects. I did my first home this way and paid the price. In order to realize the maximum profit in a flip you have to know and understand your buyer. You have to know when it is necessary to spend on the upgrades and when certain features are not an expectation of the buyer. When you reach this level of understanding, you will truly profit from your efforts…. learn before you earn.
