Real estate can be a great way to invest your hard-earned money, whether you earned it from your job or from a prior investment. In fact, when you buy real estate, fix it, and sell it for a profit, you can continue to invest your capital gains into a new property after each profit you make. Doing so can help you build for your retirement and other goals. But it is important that you adhere to some basic rules about house flipping. Here are some tips to help you in this endeavor.
Calculate the Repairs Needed
Some of the first rules with flipping a house is to look at the property's price, calculate the repair costs, and look at the prices of houses currently selling in the market. This is important so you know how much money you will need to invest in the house before you can resell it. And the goal is to invest less in the house than you will eventually sell it for.
So, for example, if you find a house that is similar to others selling for $250,000 in the local real estate market. The house is currently priced at $90,000, but after you tour through and inspect the property's interior, you find that it will need approximately $100,000 in repairs. Just be sure to complete the inspection with a contractor who can help you estimate costs unless you are experienced in this area.
Now you can subtract the price of the home and its repairs from the home's target sale price to give you the profits. Before the closing costs, this would leave you with a potential for $60,000 in profit from the sale. Talk to your real estate agent about calculating these costs based on the cost of the property you are buying.
Plan For Holding Costs
Another type of expense you need to calculate in your house flipping project is to determine how much the property's holding costs will add up to. Holding costs on a property include the debt payments during the time it takes you to fix up and later list the house for sale.
Each month the property is not sold is going to cost you your debt service and any utilities on the house, such as electrical and gas. For example, it takes you three months to fix up the property and it sits on the market for two months before it sells, you need to plan to pay for five months of mortgage payments and utilities. If your utility payments combined are $100 and the loan payment is $900, you will need to add $5,000 into your holding costs and deduct it from your profit on the sale.
If you want to start flipping houses, contact a good real estate agent to help you buy the right homes.