House flipping – is a type of real estate investment strategy. The investor purchases the fix and flip houses, repairs them and then resells the houses for profit. The increase in the price of the property will come in two forms: through a rising real estate market or through renovations done to increase the property’s value.
By definition, fix and flip houses sound like good profit generators. They can be, but not everyone is making a profit out of fix and flip houses. Most investors do not realize how much rehabilitation is needed until it is too late.
Here are warning signs you should be looking out for when searching for fix and flip houses:
Look out for water damage in the kitchen, basement and ground floor. For the basement and ground floor, signs of water damage could mean previous flooding. This could potentially spell out future problems for you. The kitchen having water damage could also mean a burst pipe. Even if the owner tells you that repairs have already been made, you still have to get your inspector to do further checking.
In the past, asbestos was used to insulate pipes. Older houses will most likely have asbestos on the pipes. If they haven’t broken down yet, then it is alright. But it eventually will which can pose problems in the near future especially if you have kids that will likely get into everything.
Problems with cabinetry can easily be fixed with repairs. A few broken cabinets are not deal breakers, but you have to look what you’re buying as a whole. The property might not be up to its full market value. If needed you can use this to negotiate with the seller.
If you walk in to fix and flip houses with cheap flooring or flooring that hasn’t been finished, you could have more work to do when the house is in its rehab phase. Replacing flooring can be expensive so you have to know what you’re getting into.
ARV stands for After Repair Value. This is basically what a property is worth after repairs. If the seller didn’t consult an expert, then the price for the property could be a little off. Online resources are great, and there are plenty of websites that will do the ARV calculation, but it’s always better if an expert steps in to confirm the property’s value.
There’s always a risk with fix and flip houses. If you’re interested in one, it’s always to your advantage if you consult an expert especially about the condition of the house as well as its value. If you have a big enough budget for your house rehab, most of the warning signs can be fixed, but you always have to weigh in the pros and the cons, especially when it comes to making a profit.
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