If the do-it-yourself-reality show is any indication, there isn’t anything simpler than to buy a dilapidated home, invest some elbow grease and a few spare thousand and poof instant profit. The show uses editing to make the whole process look painless and rapid. However, life rarely imitates this form of art.
There are sizable risks in the flipping market. Even when purchasing property in Vancouver, which seems to be moving ahead of the pack and has a stable economy; there are risks.
1. Nothing costs as much as inexperience: this is a challenge as many flippers are new to the game. In some cases they have no construction or development experience, know little about the market and are looking for a quick profit turnaround. This is definitely an area where what you don’t know will hurt you. If you do not know the area, get a broker, attorney or accountant that does. It is critical to know how much houses are selling for, how long they are on the market and what the return on improvements by area and type is running in that market. This will prevent you from overdeveloping a property, a common novice error. High-end finishes in a low-end market can eat up any available profit.
2. Know what you are getting into: have a detailed home inspection from someone with strong credentials prior to starting final negotiations for price and terms. This can easily be the best money you will ever spend. If there are critical issues such as foundation, termites, asbestos, radon or mold damage; it is essential that you understand the depth and value of the damage. Getting a house an unbelievable price is no bargain if you need to spend twice its value to rid it of rodents, termites or mold. Frequently credits are offered from the seller if the inspection reveals costly required repairs.
3. Know the neighborhood: are the schools highly rated, what is the crime rate, what is the development plan for the neighborhood? If you do not know what is coming, and most of this will be public information if you take the time to look, or work with a professional capable of tracking it down. These same things can be selling points for potential buyers if the answers are positive.
4. Bad construction costs money: if you have no experience in construction, hire someone who does. Be certain you have accounted for their cost in your budget and be sure to plan for the unexpected by having a cushion in the budget for the unexpected, unplanned and previously unregulated. If you have no dry walling experience, hire an expert. Bowed walls give it away. If you don’t know AC from DC, hire a certified electrician. Blowing yourself up is never a good investment. Skilled trades are just that, they require education and experience. Bad work means bad prices in the market and that means less or no profit from your flip.
5. This is not about your taste: you may be the foremost expert on the most electric colors ever made, but that does not sell the property. Neutral colors, choices that appeal to the largest segment of the market and avoiding purchases that date the period are essential to sell this fast. This isn’t personal, its business. Treat it like that.
Research, Research, Research is as important as location, location, location.