Okay, so flipping houses, right? I mean, it’s got to be one of the most tempting get-rich quick schemes out there, don’t you think? You see it all the time on those home improvement shows. You find a rundown place, put in a little sweat equity, and maybe knock down a wall or two, and boom, you’re rolling in profits. But you’re here because you’re smarter than to buy into that flipping houses reality TV fantasy. You want the real deal, the nuts and bolts of what makes a flip profitable and how to avoid getting blindsided.
You hit the nail on the head. The reality is flipping houses successfully is way less about having a good eye for design and way more about being a savvy investor. And that starts with a solid feasibility study.
And that’s exactly what we’re diving into today. We’re going to unpack why a feasibility study isn’t just a stack of paperwork, but your secret weapon to making sure those flips are profitable. But before we get into the nitty-gritty, let’s set the stage. What’s the fundamental principle behind house flipping?
It all boils down to this. Buy a property, but not just any property, you have to buy it below market value. Then you renovate strategically to increase its value, make it appealing to buyers. And then, and this is where so many people trip up, you gotta sell it and sell it quickly to realize that profit.
Sounds simple enough when you lay it out like that, but I’m guessing that selling quickly is easier said than done.
Oh, absolutely. Time is your biggest enemy in the flipping game. Every day you own that house, those holding costs, the mortgage payments, property taxes, insurance, utilities, they start to add up and those expenses can eat into your profits faster than you can say fixer upper.
That makes a ton of sense and it really underscores why that feasibility study is so crucial, right? It’s not just about whether you can flip a house and whether you can do it without ending up in the red.
Precisely. We actually crunched the numbers and found that for typical fli, every month that a property sits on the market after renovations, it costs an extra specific cost and holding costs alone.
Ouch. That’s a real gut punch. So yeah, time really is money when it comes to flipping houses, which brings us right back to those initial cost projections. That’s where a feasibility study really proves its worth, wouldn’t you say?
100%. A well-structured feasibility study is like looking into a crystal ball. It helps you answer the make or break questions upfront. Can I realistically buy this property, renovate it to a sellable condition, and still make a decent profit? And crucially, how much profit are we talking about here? No more estimating or hoping for the best.
So, let’s get down to brass tax. What are the key ingredients in a feasibility study?
Well, it all starts with those make or break numbers. Remember those three crucial figures we talked about?
You mean like how much does it cost to buy, how much to fix up, and what you can sell it for?
You got it. Purchase price, renovation costs, and selling price.
Yeah.
Those are your holy trinity of house flipping.
It’s the buy low, sell high game, but with a whole lot of renovation sprinkled in.
Exactly. Yeah.
But remember what I said before about being a savvy investor. It’s not as simple as it sounds on paper. Each of those numbers has layers, complexities that can make or break your profit margin.
Okay, so let’s peel back those layers then. Starting at the purchase price,
right? Because it’s not just about the number on that listing, is it?
There’s always wiggle room, right? I mean, everybody loves a good deal.
That’s where your negotiation skills come in.
But a solid feasibility study digs even deeper. It factors in things like the current market climate, how much competition you’re up against from other buyers.
Oh, and let’s not forget about those lovely surprises that tend to crop up during the inspection.
Ah, yes, those dreaded inspection surprises. They can throw your whole budget out of whack.
A thorough pre-purchase inspection is non-negotiable. It’s worth every penny to uncover potential deal breakers early on, like foundation issues, outdated plumbing, you know, the stuff that’ll keep you up at night.
Speaking of things that keep you up at night, let’s say we’ve sailed through the purchase, dodged those inspection bullets, and the property is ours. Now comes the fun part. part, the renovation,
the fun part, and potentially the most expensive part. Renovation costs are notoriously easy to underestimate.
Yeah, I can see how that happens.
You’ve got materials, labour, permits, and even with the most meticulous planning, you’re bound to run into unexpected issues.
It’s like that old saying, you never know what you’re going to find when you start tearing down walls.
Exactly. And those unforeseen problems can really snowball on you. That’s why it’s crucial to build a contingency fund right into your feasibility study.
The recommendation is setting aside at least 10% of your total renovation budget for those just in case scenarios.
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That’s a good rule of thumb. Now, within those renovation costs, there’s also the question of sweat equity. Can you handle some of the work yourself to save on labour costs?
Well, everyone knows a fresh coat of paint can work wonders
for sure. And painting is one of those DIY tasks with a fantastic return on investment. We’re talking five to 10 times your money back for every dollar spent.
You know, those are the kinds of numbers I like to hear. But I guess the question is when does it make sense to roll up your sleeves and DIY? And when should you just bite the bullet and call in the pros?
That’s the eternal debate, isn’t it? And it really boils down to an honest assessment of your skills and how much your time is worth. If you’re a whiz with a paintbrush, go for it. But if you’re thinking of rewiring that entire house yourself with zero electrical experience, well, let’s just say some things are better left to the experts
for the sake of your sanity and probably your safety. Okay, so we’ve tackled buying right and renovating smart. Now we come to the final hurdle, selling the darn thing. How do we land on a selling price that’s attractive to buyers but still leaves us with a tidy profit?
That’s where a deep understanding of your local market really comes into play. This is where you put on your detective hat and start looking at comparable properties, recently sold homes in the area that are similar in size, features, you name it.
Ah, so those Real estate apps that let you stalk your neighbour’s property values actually have a legitimate purpose.
You bet. But it’s more than just peeking at what’s sold and for how much. You have to consider the bigger picture. What’s the market doing? Is it a buyer market or a sellers market? What are interest rates like? All of these factors play a role in determining that sweet spot selling price.
And let’s not forget about those pesky closing costs. Those can really put a debt in your profit if you haven’t factored them in from the get-go.
You’re telling me agent fees, closing costs, the list goes on. These are the hidden costs of selling that can really sneak up on you if you’re not prepared.
So, we’ve covered the purchase price, those renovation landmines, and navigating the selling process. Seems like there’s a lot to keep track of when it comes to flipping houses.
There’s a lot, and we haven’t even touched on the renovation choices themselves. Deciding where to put your money, which upgrades will give you the best bang for your buck, those decisions can make or break your ROI.
So, which renovation Should flippers be prioritising?
Well, we highlighted a few key areas that tend to move the needle the most. Flooring, fresh paint, obviously. Then there are the big ones, kitchens and bathrooms. And don’t underestimate the power of curb appeal.
It’s all about making a good first impression, right? Catching the buyer’s eye from the moment they pull up to the curb.
Precisely. And when you’re talking about those big ticket items, kitchens and bathrooms, yeah, those are going to cost you more upfront, but they also have the potential for a bigger payoff when it comes time to sell.
While spending say $20,000 on a kitchen reno or $15,000 on a bathroom might seem like a tough pill to swallow, it can significantly increase the value of the property.
And potentially even shorten the time it takes to sell, which as we already discussed is crucial in the flipping game.
Absolutely. But here’s the caveat. You can’t just go throwing money at every surface and expect a magic profit multiplier. It’s all about being strategic, aligning those upgrades with what buyers in that specific market are looking for.
Right. So, no installing a chef’s kitchen in a starter home.
Exactly. You want those renovations to match the overall value of the neighbourhood and appeal to your target buyer. A top-of-the-line kitchen might be a major selling point in a luxury apartment, but could actually backfire in a more moderately priced area.
It’s all about finding that sweet spot, balancing cost and impact. Well, this has been incredibly insightful. We’ve really gone deep on what it takes to flip houses successfully. Any final words of wisdom to leave our listeners with?
If there’s one thing I want you to take away from this deep dive, it’s this. Approach house flipping like the business it is. Don’t let those dreams cloud your judgment. Do your homework. Arm yourself with data and treat that feasibility study like your roadmap to success.
Couldn’t have said it better myself. And for our listeners who are ready to roll up their sleeves and start crunching numbers, be sure to check out the show notes where we’ll have a link to that feasibility tool we mentioned. But before we sign off, we want to leave you with something to ponder.
If you were to take the plunge and flip a house, what’s the one renovation mistake you would be most careful to avoid and why?
Ooh, that’s a great question to mull over. It’s been a pleasure diving deep with you. Until next time, happy flipping everyone.
