Buying a house.
It's not going to be news to you but the most important thing when you consider buying a house is obviously the location. location, location ,location. So many people that are attempting to flip houses buy cheap houses in bad neighborhoods and hope to turn a good profit. There is a reason why the house is also cheap nobody wants to live there. Even if you do the best renovation job you may not get your return. Do your homework. Take your time find the best area thats up-and-coming. Buy a good solid house with great bones. (potential) it is better to have the worst house in the best neighborhood rather than the best house in the worst neighborhood. A good amount of patients will serve you well. Go look at lots of houses before you make a decision if you don't know what you're looking at always get the house inspected.
Before jumping straight into buying a house let's go down a checklist and make sure were ready to go.
one. Do you have the skills to pull off a flip?
Two. Do you have the money to pull off a flip?
Three and probably the most important do you have the time to pull off a flip?
Lets break these down one by one. Do you have the skills to pull off a flip. are you trying to do the work yourself are you trying to sub out (subcontract) the work. what's the plan. There is an immense amount of information out on the web these days with videos and articles about pretty much how to do anything, so if you are planing on doing all the work yourself there is some help out there. If you do decide to sub out the work are you trying to hire a general contractor do to do the whole job or are you doing piece by piece jobs with different companies. make sure you consider this before jumping in. Hiring contractors can cost a lot of money. Make sure you budget is on point.
Now that we have figured that out. let's get onto number two. Do you have the money. Figuring out the money on the flip is hard work especially, if it is your first time. The first thing you need to figure out is how are you paying for the house. Do you have cash are you doing a conventional loan are you borrowing money from the bank. The second, How much will it cost to rehab the house. When you are considering the cost of the rehab always remember to include the mortgage payments, taxes, heating and any other cost for the house may occur while in your possession. Now that you have the answers to those questions you should have an amount to purchased the house and rehab budget.
let's go onto the last question. Like I said before the most important question of them all. Whether you are subcontracting out the work or are doing the work yourself doing a flip takes a lot of time and dedication. Give yourself plenty of time to get the houses done right. I know you going to want to rush to get it to market which is obviously understandable. By. Having a professional finished product will help sell your house faster. Potential buyers notice crappy workmanship make sure all your subcontractors do a good job do not pay them until you are 100% satisfied.
Let us go out and buy a house. Buying a flip house can be very complicated. Obviously you like to buy the worst house in the best neighborhood and make a load of money. To help you along the way you can do some very simple math. The cost of the house plus the cost of the renovation plus the cost of taxes and any other fees you may incur. Gives you a total cost project. Minus that off the cost of the resell of the property and then you have your amounts of potential profits. In the Flipping industry that equation is called return on investment or R O I.
When you are putting your budget together I always like to go estimate the resell of the house a little then I actually hope for and I always add a little more to the rehab budget for unforeseen problems. That way I have a little cushion to work with.
You have found the house that you want to flip, it’s is now time to place an offer. Placing an offer on a property can be very stressful, so I'm going to break this down into different parts.
#1 The sellers asking price. You've done your homework on the neighborhood you know how much you have to spend on the renovations and you know what the house could go for once it's finished. This is where you have to lean on the experience of your realtor. Hopefully they know the market and will give you guidance on whether to go below asking at asking or above asking.
I know that doesn't seem very helpful but each market is different. For instance I live in Boston where most things go over asking whereas I do a lot of work in Oklahoma and a lots of the houses go for below the asking price. It really all depends on the market. It's always hard to know what the offer should be, you don't want to offend the seller but you also do not want to overpay. Again this comes back to the homework that you have done. You know what you can pay for the house, just don't over pay it will cut down into your bottom line.
#2 you're offer has been submitted. In a perfect world you place an offer on the house they except the offer. In many markets that's not the situation at all. You place an offer and then you have to wait to hear back from the seller. Sometimes you have to make your offer more attractive than of us. If you are paying cash that is always good and normally puts you to the front of the line. If you are doing mortgage you can increase how much cash you are putting down. If you are doing a conventional mortgage with 20% down maybe you can offer not to have an inspection on the property. Be very careful not having an inspection. It does make you more attractive to the seller knowing that you are not going to come back and try and get more money off. Just make sure you have checked out the house properly before you go down that path. There are generally four different responses that you make it from the seller. 1. yes, congratulations you got the house. 2. No, pretty much self-explanatory means your offer was too low. 3. A counter offer to your initial offer. Generally this is a good thing means that you're close and hopefully you'll get the house. 4. The dreaded multiple offer situation. This means that multiple people are interested in your house.This drives up the price of the house and you end up having to pay more. The seller will come back to you with a best and final bid. It just means you have to place your highest you are willing to pay for the house and see how it goes. Of course like everything there are exceptions to the rules. For instance I was in a multiple offer situation on a property that I knew I could make a good return on. I was not the highest bidder and did not win the house. I went back a day later and offed $10,000 more and end up getting in the house. Once again I know I keep saying it but, I knew what I could make on the house so I had to little room to play with. no you'll budget.
#3. Your offer is excepted. Congratulations you've got your shiny new flip house. Noe what?
In your offer you would have decided how long you have until closing. Generally shortly after your offer is excepted you have to put down some kind of deposit. (the amount can be different depending on which state you're in) this is called the P and S. Purchase and sale. It just means that you are willing to buy the house and have to put a deposit down. Next comes the inspection. This also you can very state by state. This is an opportunity for you to get the house inspected to find all the problems that you don't know about. Many people use this as an opportunity to renegotiate the offer and to try to take money off. Just a side note about home inspectors. They are not liable for anything that they do not I say do not discover. Basically what I'm trying to say is is if you buy the house have an inspection and they do not find that you have the roof all there's a hole in the roof all the plumbing doesn't work or countless other things they are not liable for that. Just be aware that. Try to spend as much time as you can in the house look at every think going attic going to basement go in the crawlspace turn on the taps look at the wiring hire an electrician if you have to just make sure you know exactly what you're buying.
#4. The closing. This is the best part. You get to sign the way your life and in return you get a set of keys. Let the party begin.
Just a final note on this subject. It's good to be patient don't rush into buying a property that's not the right house for you. Do your homework.