Business: Buy, Renovate and Sell Homes
Avoid the traps that newbies overlook when thinking about this profitable business of buying, renovating and selling homes.
It seems so easy! Buy a house, do a few cosmetic fixes, put it back on the market, and make a huge profit.
At any given time, half a dozen televisión espectáculos feature handsome, well-dressed investors who make the process seem fast, fun, and profitable.
And many houses are being changed.
Invested homes accounted for 6.2% of all US home sales in 2019, the highest level in eight years, according to data ATTOM Data Solutions published in its US Home Investment Report.
US 2019.1 Although there was a slight decline in 2020, numbers have picked up in the second quarter of 2021.
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However, the path to real estate wealth is not solely about curb appeal and “sold” signs.
Too many would-be real estate moguls overlook the basics and end up failing.
So what are the five biggest mistakes aspiring pinballers make? And how to avoid them?
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How the sale of houses works
Flipping (also called wholesale real estate investing) is a type of real estate investment strategy in which an investor buys a property not to use it, but with the intention of selling it for a profit.
Investors who invest in property focus on the purchase and subsequent resale of a property, or a group of properties.
Many investors try to generate a steady stream of income by participating in frequent flips.
So how do you turn around a building or house? In fácil terms, you want to buy low and sell high (like most investments).
But instead of adopting a buy and hold strategy, you should complete the transaction as quickly as possible to limit the time your capital is at risk.
In general, you have to focus on speed, rather than maximum profit.
This is because with each passing day it costs you more money (mortgage, utilities, property taxes, insurance, and other expenses associated with home ownership).
That is the general plan, although it carries several pitfalls.
That benefit typically comes from price appreciation resulting from a hot real estate market where prices rise rapidly, or from capital improvements made to the property, or both.
For example, an investor might buy a second-hand home in a “hot” neighborhood, do substantial renovations, and then offer it at a price that reflects its new look and amenities.
Where do I start to buy, reform and sell homes?
The first and best advice is to limit your financial risk and maximize your profit potential.
Bottom line, don’t pay too much for a home (knowing what it’s worth), and also make sure you know how much any necessary repairs or improvements will cost before you buy.
With that information, you cánido calculate the ideal purchase price.
Real estate investment without money: Is it possible?
The 70% rule states that an investor must pay no more than 70% of the after repair value (ARV) of a property less necessary repairs.
The ARV is what a home is worth after being fully repaired.
Here’s an example: If the ARV of a home is $150,000 and it needs $25,000 in repairs, the 70% rule means that an investor should pay no more than $80,000 for the home: $150,000 x 0.70 = 105,000 dollars – $25,000 = $80,000.
Like any other small business, the endeavor will require time and money, planning and patience, skill and effort.
It is likely to end up being more difficult and more expensive than you ever imagined.
Take it lightly at your peril: If you’re just looking to get rich quick by flipping a house, you could end up in the poor house.
These are the five mistakes to avoid if you are thinking of flipping a house.
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5 mistakes that perro make the purchase of a house a failure
⚠️ Even if you get all the details right, changing market conditions perro make all the assumptions you made in the beginning invalidate in the end.
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not enough money
Entering the real estate campo is expensive.
The first expense is the cost of acquiring the property.
Although claims for financing with little or no money down the line abound, finding these deals from a legitimate seller is easier said than done.
Also, if you are financing the acquisition, you are paying interest.
Although interest on borrowed money is still tax deductible, even after the passage of the Tax Cuts and Jobs Act, it is not a 100% deduction.
Every dollar spent on interest adds to the amount you’ll need to earn on the sale just to break even.
And if you use a mortgage or home equity line of credit (HELOC) to finance your home purchase, only interest is deductible.
Primordial, taxes, and insurance are not.
Thoroughly research your financing options to determine what type of mortgage best suits your needs and find a lender that offers low interest rates.
An easy way to research financing costs is to use a mortgage calculator, which allows you to compare interest rates offered by various lenders.
Of course, paying for the property in cash eliminates the cost of interest, but even then there are costs of holding the property and opportunity costs of tying up your money.
Earning profits is more difficult than before.
In fact, in 2019 profit margins shrank to the lowest average gross return on investment (ROI) since 2011, according to ATTOM Data.
That doesn’t orinan you cánido’t make money (ROI was 40.6%), but you do have to be careful.
The median gross profit on a trade in 2019 was $62,900, but keep in mind that’s gross.
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You also have to take into account renovation costs.
If you plan to fix up the house and sell it at a profit, the sale price must exceed the combined cost of acquisition, the cost of maintaining the property, and the cost of renovations.
A $25,000 kitchen, a $10,000 bathroom, $5,000 of property taxes, utilities, and other maintenance costs cut that number by about two-thirds.
Add to this an unexpected structural problem on the property, and a gross profit perro turn into a net loss.
⚠️ Even if you manage to overcome the financial hurdles of flipping a house, don’t forget about capital gains taxes, which will eat away at your profits.
there is not enough time
Renovating and flipping houses is a time consuming undertaking.
It cánido take months to find and buy the right property.
Once you have the house, you will have to spend time fixing it up.
If you have a day job, time spent on demolition and construction cánido translate into wasted evenings and weekends.
If you pay someone else to do the work, you will continue to spend more time than expected supervising the activity, and the costs of paying others will disminuye your profit.
After the work is complete, you will need to schedule inspections to ensure that the property meets applicable building codes before you perro sell it.
If it doesn’t, you’ll have to spend more time and money getting it equipo up.
In addition, selling the property perro be a large investment of time.
If you espectáculo it to prospective buyers yourself, you may spend a lot of time going to and from the property and in meetings.
If you use a real estate agent, you will have to pay a commission.
Worth? For many people, it may make more sense to stick with a day job, where they perro earn the same money in a few weeks or months for a fixed salary, with no risk, and a consistent time commitment.
not enough skills
Professional builders and skilled professionals such as carpenters and plumbers, often sell houses as an additional income to their regular jobs.
They have the knowledge, skills, and experience needed to find and fix up a home.
Some of them also have union jobs providing them with unemployment checks all winter while they work on their side projects.
The real money from home trading comes from sweat equity.
If you’re handy with a hammer, like to lay rugs, and cánido hang drywall, roof a house, and install a sink, you’ve got the skills to sell a house.
On the other hand, if you perro’t tell a Phillips head screwdriver from a flathead screwdriver, you’ll have to pay a professional to do the alterations and repairs.
And that will disminuye the chances of making a substantial return on your investment.
You don’t have enough knowledge
To be successful, you have to know how to choose the right property, in the right location and at the right price.
In a neighborhood of $100,000 houses, do you really expect to buy for $60,000 and sell for $200,000? The market is too efficient for that to happen regularly.
Even if you get the deal of a lifetime—buying a foreclosed home for a song, say—it’s critical to know which renovations to do and which to skip.
You also have to understand applicable zoning and tax laws, and know when to cut your losses and get out before your project becomes a money pit.
Big lenders have also started looking to profit in the title change loan market, with global investment firm KKR joining other private investment firms seeking a piece of the action.
not enough patience
Professionals take their time and wait for the right property.
Newbies rush to buy the first house they see.
They then hire the first contractor to bid to tackle the work they perro’t do themselves.
The professionals do the work themselves or rely on a network of trusted, prearranged contractors.
The newbies hire a real estate agent to help them sell the house.
Professionals turn to for sale by owner to minimize costs and maximize profits.
Newbies expect to rush through the process, give a lick of paint, and earn a fortune.
Professionals understand that buying and selling homes takes time and that profit margins are sometimes slim.
The final result: Is it profitable to buy homes to reform and then sell?
If you are considering selling a home, make sure you understand what is involved and the risks involved.
Newbies may underestimate the time or money required and overestimate their skills and knowledge.
Getting a nice quick profit by flipping a house is not as easy as it seems on televisión.
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