Sue Adler has been the #1 Keller Williams agent in NJ for the past six years, and leads one of the top Keller Williams teams worldwide, with annual production of $62 million in 2010.
Thinking of Flipping Homes for Profit? Read This First
Many people have seen the television show “Flip this House” and believe they can make quick and easy profits buying and selling homes. It’s been noted that many times the programs that show people how to flip property may not be telling the entire story. After all, isn’t property flipping just about buying low and selling high? Well, not exactly.
Many amateur and inexperienced home investors have a fish story about buying a home and not realizing all the costs involved with rehabbing the home and then selling it to an “end user.” It’s true with home flipping that the devil is in the details.
Buying the right house
It’s not the same market it was a few years ago when there was huge inventory of foreclosed and bank-owned homes. The number of homes for sale is down by more than 50% in some places. The result is that the few bottom-priced rehab candidates are getting a lot on attention from investors, and multiple offers from would-be future real estate gurus. The profit margin has narrowed, and experienced investors are making slim margins on many properties because of the overall costs of purchasing, rehab and listing the home for sale. Homes that need extensive rehab or reconditioning are being passed up by experienced pros who are not willing to tie up their money in a home that may not sell quickly and for the right price.
Transaction costs can eat up your profits
Many new real estate investors forget to factor in the 3-5% real estate commissions involved in buying and selling homes. A mistake many investors make is trying to sell the home themselves to avoid paying a commission. Although sometimes this is successful, many prequalified buyers are working with a realtor these days. There is also costs for escrow, title insurance, permit costs and city taxes for each transaction.
The final profit from a flip may be less than you think
Many investors will proclaim they purchased a home for one price and sold it for a much higher one in order to dazzle you. When the details of the entire transaction are analyzed closer, there are many more costs involved. For example a home could be purchased for $100,000 and sold for $150,000 if the right repairs and improvements are made. For example, a home transaction may cost $8,000 for purchase and rehab costs; holding costs might be an additional $6,000. Sales costs are usually 3-5% plus it is not usual for the seller to give the buyer a credit, which would add up to another $10,000 in costs.
The bottom line is that it’s not easy to flip a house and make a big profit. The secret truly is buying the right home for the right price. The price must be purchased at a price that is low enough to build in profits for the investor. For the new real estate investor, it’s a good idea to learn everything you can about flipping house and buying and rehabbing property. A good source of information is the local real estate agent that knows about the recouped costs of remodeled kitchens and bathrooms and what the average home is selling for (and how long it takes). It is also a good idea to belong to local real estate investor groups to learn from more experienced home flippers.
Sue Adler, you had me at “Hello.”
“…Know a good real estate agent?” Yes, glad you asked!
You had me at “Hello,” Susan Adler. Your clean and modern website color scheme makes home shopping a genuine pleasure. It’s a welcome change from the flashing neon advertisements and pop-ups encountered elsewhere. My only regret is that I have but one house to buy.
– Ryan, Los Angeles
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