7 Things to Consider Before Flipping

When you’re deep in the real estate game you probably douse yourself in house flipping shows like I do. Maybe you’re into the house flipping game yourself. One thing is for certain though, house flipping can be tricky. The whole process can be pretty unpredictable. With every renovation, your profit margin continues to get smaller and smaller. However, there is a way to completely bypass all that trouble. New construction is a great and hassle-free way to flip a house, but there are some things you should consider before jumping head first into flipping new construction. 

1. Custom Vs Spec.

Know the difference between a custom home and a spec home? A custom home is a house tailored to the owner’s specifications. A spec home is one that is built for an investor to make a profit.  Knowing the difference will help you determine what kind of house it is and finding the correct builder for the job. New construction flipping will be best done by a builder that has spec home experience. They will have the best knowledge on where to spend your money to ensure you get the most out of your flip.

2. Save or Spend?

Any experienced flipper will know where to spend their money and where to hold back. It is crucial to you that you spend on the areas that will become selling points for your potential buyers. Traditionally, those spaces are the kitchens and the master bedroom. Be sure to invest in high end cabinets and lighting fixtures. Try not to spend so much on pricey paint and landscaping. Those are both that can be tailored to your buyers taste and shouldn’t be a high priority. 

Building spec homes means you get to start from scratch with no demolitions or renovations. The goal of the home should be trying to give your buyers a house that they wouldn’t even think about renovating. 

3. Lower Initial Capital

The lower you can make your investment capital, the more money you’ll save. Builders will typically offer incentives such as upgrades, better interest rates, and even design center credit. You could possibly use their mortgage company or build during a certain month, maybe opt to build in a specific location. Just be sure to exhaust as many options as you see possible. This will lower your upfront capital and increase your profit. 

4. Consider The Market

One of, if not the biggest factors in whether or not a new build will flip well is the market. Bargain hunting buyers will hunt your new house down in a sluggish market. They are typically willing to renovate it themselves if it means getting a better deal. But be on the lookout for hotspots. That area of the market may just work. Keep an eye out for areas where new jobs are easy to find and development is going fast. Homes that are ready-made will draw in more buyers, especially if they are in a hurry to move in. Just remember, if the market is hot, flipping new construction could be lucrative. In a slow market, a traditional flip is the best bet.

5. Location

Whether you’re looking to flip the house or not, location is key. If you built the most top notch house in the middle of nowhere, you will most likely be doing the mortgage paying for a long time. Consider your location thoroughly. Look for a space with lots of development around (ie. lots of jobs and fast sales). A more modest house in a good location is cheaper to build and will help bring in the most profit.  

6. Create a Slush Fund

Once you have a price from your buyer, be sure to take 10-15 percent of that to keep on hand incase of any issues or delays that may arise. It is possible that you might have unexpected land issues or find yourself carrying the mortgage for an extra month or so until it sells. This is where a slush fund would come in handy. It’s possible it might eat into your profit, but it will keep you afloat until you get the property sold.

7. Design Thoughtfully

The hardest part about designing the home is that you are not the homeowner. The renovations you might want to make may not be everyone’s cup of tea. To appeal to the most buyers possible, you’ll want to work with your experienced builder to design a home that will cater to everyone’s needs. 

Things to consider:

• What type of floor plans are selling well?
• How much are similar homes going for in that area?
• Where should you spend the bulk of your budget?
• What features are local buyers looking for?
• Who is most likely to buy this home?

By asking yourself these questions, you will create a buyer mindset. With that in mind, you can build a home with no question that it will sell. 

By: Mike Oborn