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What You Need to Know About Real Estate Investments: Flipping

Jim Lowenstern, President of Castles Unlimited, explains how flipping a house can be a great real estate investment.

It takes a certain savvy type of investor to consider flipping a house, but the promise of turning a quick, efficient profit can be irresistible. By buying a rundown or unappealing property and swiftly increasing its value, a "flipper" can sell at a higher price and pocket the difference.

If you think you might be interested in flipping a house, there are a few things you need to know, and the first is simply the process of how to buy a piece of real estate. Most flippers have likely bought a home previously, but for those who haven't, it's a good idea to start out by gaining a familiarity with the ins and outs of buying a home and, of course, to engage the services of an adept real estate agent who can help navigate the process of making an offer, securing a mortgage, and closing the deal.

As with any real estate transaction, it's important for the buyer to investigate the specific market in which he or she is investing. As a flipper, you'll be especially concerned with matters like whether the market is on an uptick or a downswing and the prospects for resale in the near future. Once you've done your due diligence with that sort of research, you can start to search for the right property to buy.

The best piece of advice I can give a first-time flipper is to avoid getting in over your head! You need to have a clear plan for the location and type of property you're looking for, the improvements you're willing to make, and the amount of time it will take to turn the property around. Start small and get  your feet wet before you take on anything too complicated or daunting.

So, what type of property are you looking for? Are you equipped to make vast, house-wide improvements, or are you hoping for a quick fixer-upper? What is your budget? Are you aiming for installing new carpet or hardwoods, doing a little (or a lot) of painting, putting in a fence or new roof, or even updating bathrooms or a dated kitchen? You need to think about whether the renovations you're willing to make are largely cosmetic, or whether you're willing to dig deep and rescue a house on the brink of being condemned. Remember to think about what will appeal to buyers at resale. What's the median home price in the neighborhood, and what sorts of amenities will buyers be looking for? Is a garage a must? A deck? How about multiple bathrooms? Make sure you don't make so many improvements that you price yourself right out of the surrounding market.

Once you've found the house you're planning to make over, you'll need to secure a loan. And don't forget that you'll need to factor in financing for those improvements you wish to make – which you may need to take into consideration when you obtain a loan to buy the property. Make sure you have more money than you expect to spend on repairs and improvements in case of unexpected expenses. If you don't have a lot of extra cash on hand up front, you'll need to factor excess cash into the loan you are seeking.

Now the house is yours and your job is to go in and make the improvements necessary to increase the property value. You'll want to make sure that above all, you cover any repairs that would deter a potential buyer. And think twice about an expensive kitchen or bathroom remodel, because this type of renovation can be costly and you don't want to fall into the trap of spending more on the remodel than you'll recoup during the resale. If possible, make improvements yourself, or hire cheap labor (such as college students to paint walls and spruce up landscaping) to minimize your costs.

Once you're satisfied that you've made improvements that have increased the value of the property, you're ready to prepare and stage the house for resale. Furnished houses are more inviting to potential buyers than unfurnished, but only if the furnishings and fixtures aren't shabby; the last thing you want to do is to get a house looking great and then outfit it with anything that will lessen its appeal. By the same token, you want prospective buyers to see the house as a canvas for them to fill in, so don't get too cutesy or dramatic with the décor. As a rule, neutral tones work best. And as you would with any home, put some effort into making the home look inviting and don't forget the value of curb appeal.

Your real estate agent can help you put the house back on the market for a significantly higher price than you bought it. Make sure your agent knows the improvements you've made in order to be able to highlight them to prospective buyers.

Once the house sells, you can pay off the loan and record your pocket your newfound earnings. After all that hard work, you've earned the windfall. Good luck!

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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