Flipping for profit and pleasure?
A comment on a previous post was so detailed I felt the response deserved a post of its own:
“…i was recently supposed to start school in september to become an interior designer but decided that it wasn’t the right decision for me. I know it would bed difficult to get into but, I have always in the back of my mind thought it would be really cool to get into flipping properties and was wondering if you could either answer some basic questions for me or redirect me to a place where i could find REAL SOLID information.
I know im only a 20 year old girl with limited knowledge,skills and money, but I’m pretty sure i can learn anything i have to.
I guess the main thing I’m looking to find out is how much money would i need to save to get something like this off the ground. I live at home and save most of my money( i’m still anticipating ill have to save for a couple more years before i can really do anything.) Basically I know that this isn’t going to happen over night and it’s going to be somewhat risky, but this is what i want to do, and if its at all possible, ill do it.
I know id have to start off pretty small doing condos or something, and there is a lot of things i need to get in order. I’d like to start small so i dont get in over my head and so i could slowly try to add money to my bank so i can do bigger things. Would you be able to tell me:
-is it possible to start of doing more cosmetic things(flooring, kitchen/bathroom renos, paint and other things that dont involve mega money and completely gutting a house, and still turn any profit?
-how much money i would need to get started on something smaller, i know the more you put in the more you get out, but i dont have a lot of money yet.if i bought a $200 000 condo, with a $10 000 downpayment and did about $20-30 thousand in improvement would that be enough? would i be able to get anywhere?”
It sounds like you’ve thought through the idea sensibly and have taken the time to examine the options. So you’re already on the right track.
The TV shows make the process look relatively easy and, with a few dramatic hiccups on the way, usually deliver a happy ending. Bear in mind that what they have cut out is as important (perhaps more so) then what they have kept in. As Ralph Roberts, the co-author of Flipping Houses for Dummies says:
“It’s never as easy as it looks on TV. People don’t generally line up at your front door begging you to buy their house for 30-50 percent below market value. Renovation expenses always exceed estimates. And you can’t always sell a house for what you think it’s worth. Flipping houses for a profit requires time, money, and what I like to call sticktoitism—dogged determination in the face of overwhelming uncertainty.”
So if you think you’ve got ’sticktoitism’, then go for it.
Do spend some time in understanding the fundamentals of property development and real estate management. For this I would recommend three books which ’give it to you straight’. Don’t be put off by the titles - these are the best to get you off the ground. The first is Real Estate Management for Dummies, the second, which we have already mentioned, is Flipping Houses for Dummies, the third is Property Management for Dummies. There are MANY books out there, but these three will be enough to start you off.
Take some more time. Select an area (preferably your own neighbourhood - or at least one which you can visit easily and regularly) and then ‘walk it’ - which properties are available, what types of properties are selling quickest.
Read the local press to keep up with developments in your area, and keep up to date with national news relating to real estate issues, mortgages, foreclosures etc (Business Week has a much-awarded blog called Hot Property).
Remember that knowledge is power - nowhere more so than the property market!
If you’re going to need capital (i.e. a loan) to get started, then meet up with banks and mortgage lenders in your area well in advance. Explain to them what you intend to do and build up their trust and confidence - get a feel for which one you feel most comfortable with.
Get to know the local realtors, explain what you plan to do - if things go well you will need them in the future, and they will be able to give you some sound advice.
Also start to build relationships with good local contractors. Again, you won’t be using them immediately, but you will save time and money later on if you have an idea of a ‘trusted team’ in place before you start.
Basically, become an expert in your chosen field and in your chosen neighbourhood (you can always expand the geography later as you develop).
Finally, remember that ‘flipping’ is not the only way to get ahead in real estate - gradually buying a portfolio of properties to rent is another way. Another is to become a realtor yourself - once you have the direct experience of working in the property market you will be in a great position to go into ‘flipping’ or property development in general.