I had to summon a lot of courage to start a real estate investing business. I wasn’t one of those folks who acted rashly, coming up with a bright idea, forming a loosely constructed real estate investing business plan, and quitting my job before any revenue rolled in. Undoubtedly, there are folks out there who want to get started as soon as possible but I tend to be analytical and need to learn all I can about a trade before diving in head first. The weekend warrior path seemed right for me. My kids were grown and I wanted a way to diversify my income and possibly be my own boss one day.
In my research, I talked with many friends and family members who started out as landlords and either abandoned the business entirely or moved more toward buying, renovating, and selling homes for profit. They all felt a smoother and less aggravating path to profitability came about when tenants and their numerous issues were traded for contractors and buyers. If you feel much the same way, you should heed my advice regarding flipping houses for beginners. This approach doesn’t necessarily require a boatload of specialized skills, but you’ll want to know these five basic tips before you get started.
5 Tips for Beginning to Flip Houses
My new business venture didn’t require an advanced degree or any special certifications. In fact, I was encouraged by the variety of backgrounds possessed by the folks I met in the business—plumbers, teachers, general laborers, and Wall Street types, to name a few. Each of my fellow investors brought a unique wrinkle to the table and I always adhere to the advice they’d given me from the beginning.
- Find Appealing Neighborhoods. I like to put myself in a buyer’s shoes. If my family was searching for a great location, what would we look for in a neighborhood? I do all the cooking in our home so consequently, I’m at the grocery store a few times per week. I want to be close to those shops and I also don’t relish jumping in my car every time I need something. I like to walk—to a café, to a tavern or to a dog park. Walkability ranks high on my desirability scale and I have to think that most people feel the same. They want a neighborhood feel with quick and easy access to amenities and attractions.
- Find Bargains. Remember, this is a business and not a hobby. Your goal is to walk away with some profit after all your efforts. There are no guarantees on making money but the basic tenet of any investment program is to buy low and sell high. As such, I think the first skill I needed to hone was my negotiation skills. When I dug up leads on undervalued properties, I initially talked to a seller and gauged their tone. Was there a hint of desperation or anxiousness in their voice? If so, I knew that I could help them out of their difficult financial situation while buying the house for a purchase price that left room for reasonable returns after I renovated.
- Call in Favors. I’ve given a ton of free financial and insurance advice to friends and family over the years. In my mind, that pro bono work just goes with the territory. My intent was never really to leverage my words of (alleged) wisdom. However, when I started buying homes, I picked the brains of my contractor friends about approximate remodel costs and choosing the right type of materials that would lend quality to a house rehab without breaking the bank. I wanted to stay in line with other homes in the neighborhood and these friends had done enough work locally to guide me toward the norm without over-improving my properties.
- Don’t Forget Curb Appeal. The first step a potential buyer will likely perform involves a drive-by inspection. Ravaged lawns, dying shrubs, and peeling or faded paint don’t convey the best image despite the quality of improvements made inside the dwelling. Sure, pictures posted online might present a different side of the story but the all-important curb appeal could weigh heavily on a buyer’s decision to see the home and become enamored with it. Set aside part of your budget to spruce up landscaping, porches, and entranceways. Remember, you might not get another chance to make the storied first impression.
- Know Your Financing Options. Flipping homes opened my eyes to a whole new world of borrowing options. Because of the nature of these deals—short-term holds of below-market properties—I turned to hard money lenders. These private companies understand the nature of buying, renovating, and selling homes and as such, differ greatly from conventional loans. One advantage of hard money loans is that these specialized creditors may lend you the whole ball of wax—enough for the purchase of the property and the amount needed to repair it. Borrowing requirements vary but often credit and tax returns don’t factor into the equation. These lenders scrutinize the value of the property in question and approvals and closings could happen much quicker than conventional loan processes. Before you’re ready to buy, investigate these short-term financing deals to expedite the purchase and perhaps save you from pulling the rehab costs out of your own pocket.
Finding the Sweet Spot
I purposely plodded through my first few real estate deals. It started out as a part-time pursuit as I didn’t want to overwhelm myself. With all the hats I had to wear, I also felt I needed help beyond my own intuition and the instincts of my inner circle. As I moved to build a portfolio, I realized I needed more real estate investment training and help with lead generation, property valuation, and the marketing. That’s why I became an independently owned and operated HomeVestors® franchisee. As a franchisee, I gained access to all this and more. My dedicated Development Agent and network of other franchisees are on hand to answer my questions as they come up. This has helped me to robustly round out my basic real estate investing knowledge.
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