5 Rules for House Flipping that You Should Always Remember!Aug 09, 2023
House flipping can be challenging and exciting at the same time. You may find it challenging if you’re new in this industry or you believe you don’t have enough knowledge and experience in doing your job right. But you can also find it very exciting knowing that in every deal you close, you’ll get the profit you need and you’ll learn something new every time . So to further help you get more excited about the earnings waiting for you in this industry and turn your challenges into opportunities, check out these 5 rules for house flipping that you should know.
70% Rule in House Flipping
Most house flippers have an easy plan to earn money. After purchasing a house for a low price and fixing it up, they will then put it on the market at a higher price. They only have one goal: to earn the profit they deserve from house flipping.
So with the 70% rule, they may boost their earnings even more, especially those who are scouring real estate listings.
The main concept of the 70% rule is that you, as an investor, should not pay more than 70% of the overall ARV or the After-Repair Value of the property minus the expenses for the renovations and repairs of the house you’re flipping. It means that the ARV ie the After Repaired Value is the amount for the property that you could sell it for in the market after the entire renovation process is complete.
That’s why when you find a particular house that you are interested in buying, you have to estimate the price you think it could sell for after fixing it up. Then, multiply that amount by 70% and subtract the estimated renovation and repair cost from it. The number you will get will be the highest possible price you will consider paying for the property.
However, before you can go ahead and finalize your purchase for a home, you also have to make sure you understand the current market trends and even build a beneficial connection with other professionals in the real estate industry. Besides that, you also need to get in touch with experienced contractors who are experts at home renovations and repairs for you to know the approximate cost of fixing a house up for resale.
Do a Thorough Inspection Before Making a Purchase
Buying a property is an expensive investment. Especially in house flipping, it deals with a long process from the property acquisition up until it gets ready to be staged on the market again. So if you want to make sure that you’re buying the right property, you have to do a thorough inspection of both the interior and exterior parts of the house.
Moreover, most investors want to flip a property with basically cosmetic requirements. But it doesn’t mean that they only have to approach homeowners with a property that requires little cosmetic repairs. It’s because if you have the skills around doing DIY projects or have a team who are experts at home repairs and renovations, it’ll be to your great advantage to know the house's real value after fixing it, including the overall cost for renovation. Again, don’t be too impulsive at buying a property, but always take your time to check and inspect every corner of the house properly and remember you can do all this during your inspection period. If we think we have to know all the answers before taking the first step to getting the house under contract we’re never going to get started.
Know Your Limits
As an experienced investor in the real estate industry, it’s one of your primary goals to lessen the money you’re spending on home repairs and renovations as much as possible. You may also consider the idea of working during your off-hours just to make sure you’re maximizing your time and spending it fixing the house you plan to flip. Doing so will significantly help you save money that you could have spent on people you’ve hired to help you do the job.
However, you also have to make sure that you are aware of your limits. You may know that you possess the necessary skills to do the job, but it’ll be more effective and efficient to work smart than merely working hard. Your productivity will surely increase while working with the right people instead of doing it yourself. On top of that, building a team of professionals that you can truly trust with the job will give you so much convenience in dealing with the challenges and even making house flipping a great success. You’re better off investing time getting multiple bids for competitive pricing and then making several visits during the renovation process to make sure things are done right and efficiently.
Home Renovations to Attract the General Market
Another rule in house flipping that you should always remember is that you’re renovating the house to get the attention of the buyers in the general market. One of the most common mistakes that many investors make is that they plan the entire renovation based on their personal preferences.
Keep in mind that it is not you who will live in that house. That’s why you need to stay neutral when it comes to renovations and repairs. You can add your personal touch but make it minimal. So it’s still important to do research for you to have some helpful ideas on how you’re going to fix, repair, and enhance the property you’re flipping.
Always Keep Your Records
As a real estate investor, it’s part of your responsibility to make sure that everything is recorded, just like other smart people in business. They also always have proper documentation of every activity related to finances. So if you’re flipping houses, don’t forget to keep records of all your activities around your real estate investments.
You have to document everything, including every single purchase that you make from the first quarter until the end of the year. Also, don’t forget the costs of repairs and renovations and other expenses in every house you flip. As you can see, you need to have a record of every single penny that comes in and out of your account. It won’t only help you do budgeting most efficiently, but it will also help you not scramble for the proper paperwork during tax season.
As mentioned earlier, house flipping can be challenging and exciting at the same time. But as a real estate investor who has goals to achieve in life, you can always change your mindset, transform your challenges into great opportunities, and sustain your excitement house flipping while keeping the rules discussed above in mind.
Get started today and see if you’re a fit to partner with me and my team to get your first or next house flip going.
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