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Do the Math Before You Flip

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By : Rob Thomson    99 or more times read
Flipping houses can be a great investment and it also contributes to restoring older rundown properties and increasing property values. Your success, however, is determined before you buy that first house. Do it right and you'll start building yourself a tidy savings for your old age, do it incorrectly, and you could go broke.

That being said, before you start - work the numbers then work them again, and again.

Start with the realistic selling price. Take into consideration the time of year, the neighborhood and selling prices of similar homes in the area. If you've picked up a real bargain because the neighborhood is downtrodden, your new and improved home may be priced out of the market.

Subtract the cost of getting into the house. This includes repairs, renovations, contractors fees, building permits, new fixtures, appliances, etc.

That doesn't look so bad, but now subtract agent commission, bank charges and legal closing costs.

If you're still in the black, then figure out how long you expect the renovations and selling time to take, and add a couple months for good measure. Now subtract interest and carrying charges on your financing over that period.

Hopefully the amount is over $15,000, because anything less can get eaten up during the purchase negotiation process, or in a declining sellers market.

Many houses look like great deals until you complete this exercise. A good rule of thumb is to look for a home that could be resold at least 50 percent higher than its current value, or $100,000 on an upscale home.

Here are some extra tips to consider before you commit that will help you come out ahead.

When choosing your investment, don't fall in love with the houses. Think of them as merchandise and if the numbers don't work out once you calculate your profit margin, walk away.

Be patient when looking for a property. Timing is everything, and when the right one comes along, you'll know it.

First impressions are everything when selling a home. Does it have curb appeal, an ideal location, proximity to schools and local businesses? All of these things will make your job of selling the house easier.

When determining the extent of renovations, have the experts look it over and advise you. Try to zero in on properties that require mainly cosmetic changes such as painting, flooring, new appliances and updated fixtures. Structural problems or dampness may be the sign of bigger problems.

When creating your renovation budget, allocate 10% of your funds towards landscaping and improving the exterior of the house. Look at houses that have moved quickly and I guarantee that most were the immaculate homes with green, weed-free lawns.

When deciding where else to spend your renovation dollars, kitchens and bathrooms are most noticeable by many buyers and provide the biggest return.

Be diligent with your timeline - because time is money! Get the largest projects out of the way first.

Educate yourself by taking a course on flipping, and speak to people who have been successful at it. Learn from their mistakes.
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