Now is the perfect time to start flipping homes
Thursday, May 08, 2014
The real estate market made a strong comeback in 2013 as more people invested in houses than in the previous few years. Many experts thinks 2014 will lead to not just recovery but also hope.
Though both home values and mortgage rates are expected to rise this year, they won't dampen the home-buying activity too much unless hampered by employment factors. According to Freddie Mac's April outlook, the housing market will see increase in purchase as employment and wage growth rise slowly — especially in manufacturing and construction, two of the largest employer segments in the country.
What we will also see this year is a rise in inventory, with more sellers willing to put their properties on the market than the last two years. Almost 2.5 million homeowners were able to receive positive equity on their homes in 2013 due to the steadily-rising prices.
However, this positive growth will not completely rule out foreclosures. Instead, we may find more homeowners selling to professional homebuyers who will save them from immediate foreclosures, and therefore a nightmarish credit history. These homebuyers will flip, rehab or refurbish these properties, turn them into completely new homes and then sell them for a profit.
What was cause for worry in the past few years was distressed inventory at discounted prices, and many professionals suffered quite a bit for it. But it seems things are poised for a definite change.
In 2013, more than 156,000 homes were bought by real estate investors, who flipped or rehabbed them and then sold them for a hefty profit. The average profit was recorded to be $58,081, which aided the popularity and growth of flipping and also led to the increasing number of investors this year. One reason why the industry looks hopeful is that inventory is also looking up, and in some regions the profit figures varied between $80,000-$100,000.
The market right now is full of opportunities for the smart rehabber who can detect the right potential in a property and invest right away. You will not only have to rehab these properties the right away, but also play by the rules to make a profit.
Here are some tips that will help if you are planning to become a professional rehabber or expanding your business with the growing market.
1. Do your homework
Start with thorough research about the market in which you are going to play and who will be your target customers. You will have two kinds to deal with — the existing or old homeowner who will sell the property to you for a cheap price and the new homeowner who will buy it from you for top dollar.
So the price in comparison to the market and the immediate neighborhood is important because that will determine your profit margin. If you are familiar with a certain region, sticking to that would best work in your favor instead to trying to play a completely new market.
2. Arrange financing
If you have capital to invest, then great. If not, don't fret. This market looks promising, so a good business with a solid profitability chart will easily woo investors. But in each case, you must be thorough and clear about the kind of expenses involved so that the capital can be arranged to cover it well. If you don't need any, then it can simply add to your profits or be rolled over to the next project.
Rehab projects are about old houses, which come with innumerable hidden costs. Many rehabbers miss out on these extra costs and then find themselves in trouble. Apart from the purchase price, there are renovations, legal, staging and marketing expenses to bear as well.
3. Study the laws
A common mistake new rehabbers make is not getting the proper permits in time — or at all. Permits are needed for basic changes and alterations, plumbing, roofing and all things related to remodeling. Make a list of all that is required, so you don't have keep running up and down the courthouse steps.
Another important thing to keep in mind here is to opt for professional home inspection before and after the project. Professional inspection not only reveals problems in time so that minimal damage is done, but also provides certifications that can definitely add to the value of the house.
4. Remember the labor
Many new rehabbers try to tackle the remodeling work themselves, but they are not qualified to do it. They think they are saving money and call themselves hands-on investors, but in reality they simply end up creating a substandard project.
Unless you really have the necessary building expertise, avoid going down this road. Hire professionals to carry out all the work while you oversee and manage them. Include these costs in your final sale price so that there is no question about incurring losses. What you will have in the end is a beautiful and professionally-done home that will definitely attract buyers.
5. Don't forget the décor
The above rule applies to interior design as well. If you have knack for it, then great. If not, then hire a professional to handle the décor from grounds up. This is important because a well-done interior will be your silent marketing tool and cinch the deal right away. Poor decorating will kill this immediate appeal and seriously jeopardize your chances of making a healthy profit.
While you are at it, hire a landscaper to increase the curb appeal as well. With these cosmetic developments, you can hope to sell within six months, which was the average time frame for rehabbed homes in 2013.
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