My name is Phillip and my wife and I just moved to the area to be closer to our grandkids. I retired in the fall of 2015 at the age of 67. Frankly, retirement is not what I expected and I often find myself looking for things to do during the day.
My wife watches HGTV and all of the shows about flipping houses. I’m not naive enough to think that flipping houses is like the tv shows. However, my wife Sonja has always had a great eye for design. Our friends have always called her to help out when they are building or remodeling their home and need help making selections on paint, flooring, light fixtures, etc.
We’re thinking about buying a home and flipping it. If it works out, this gives us a fun project that we can work on together and in between doing houses, we have the freedom to travel and do the other things that we looked forward to in retirement. What advice can you give us before we begin this journey together?
Welcome to the Bryan/College Station area! We’re happy to have you and Sonja join our community.
The first thing you will need to do is assess your cash situation. Ideally, you will purchase the home and do the repairs with cash. If you have the cash yourself, that is ideal. If not, you can work with family members or investors to raise enough cash for the investment or form a joint venture with a partner who can fund the deal while you invest your time by doing all of the work. Financing the purchase through a lending institution is the least attractive route. With a cash purchase, you will already have monthly carrying costs: utilities, taxes, insurance, etc. Adding a monthly note payment to these other costs can eat into your profits very quickly.
The next step is to create your team. You will need to create a relationship with at least one Realtor. You need an expert to help with identifying and securing undervalued properties. Your Realtor should be able to work with you and your contractor(s) to give you a very good idea of a best case/worst case/likely sales price for the property after the work is complete. Most successful house flippers and investors in the area have established relationships with several Realtors so that they have more than one set of eyes looking for possible purchases.
If you are planning to act as the general contractor, you will need to identify and partner with a skilled painter that does great sheetrock work (their skill at matching texture is very important), flooring company, granite/quartz installer, roofer, landscaper, electrician, and plumber. You may decide that you want to hire a general contractor who will likely already have a team assembled. Of course, paying a general contractor cuts into your bottom line, as well.
It is important to have a team that can assist you with finding great ways to create a “look” for the home without breaking the bank. You can stay on top of current trends with websites like Houzz.com. Once Sonja has decided on the final look/finish out for the home, she can work with local companies to find lower cost, high quality ways to create the same finished look for a home for less money.
Once you identify the property, you will want to act quickly. A great Realtor will help you to structure an offer so that you may secure a property at the lowest possible price. I suggest getting your team in to get you estimates on work before you make the offer, but if the property is one that other investors are aware of, time is of the essence when it comes to submitting an offer and securing the property. You may negotiate an “Option Period” which is designed for the buyer of the property to do inspections and negotiate repairs. The Option Period is actually an unrestricted right to terminate the contract. If you determine during the Option Period that, upon closer inspection, that the scope of the remodel is larger than you originally thought, you can terminate the contract and forfeit only your option fee ($50-200).
Be certain that you calculate the cost of selling the property into your total expenses. These costs include Realtor commission, title policy, home warranty, title company costs, and the cost of last minute repairs that are identified by your buyer’s inspectors (several of the items listed are negotiable).
The last bit of advice that I can give you, Phillip, is that it is all about time. You must act quickly to secure a property, your contractors need to be responsible and committed to showing up on time and completing the work within the established timeline, your flooring store needs to deliver the product on time, and when you complete the home, your Realtor needs to have it professionally photographed and listed quickly. Every day that someone pushes your timeline costs you money.
Okay…one more piece of advice: Have fun!! It is incredibly rewarding to take a distressed property and bring it back to life! You have the opportunity to take a sad, worn out property and turn it into someone’s dream home. That is special. I hope you and Sonja absolutely love flipping homes together!