Thanks to television shows like Flip or Flop, house flipping is in its heyday. In fact, many people wonder whether it is possible to flip their way to retirement, either allowing them to retire comfortably when the time comes or using it as a means to exit the formal workforce early. Here are some house flipper tips for retirement.
Can You Flip Your Way to Retirement?
In short, yes, you can flip your way to retirement. However, that doesn’t mean everyone will achieve that level of success, and many flippers who proceed without a plan actually lose money.
Shows like Flip or Flop, Zombie House Flipping, and First Time Flippers don’t always provide flipping newbies with an accurate picture of what it takes to flip a house successfully. While they touch on the financial aspects of the projects and mention some of the challenges, these shows are small glimpses into the reality of taking on a house to flip.
Plus, buying a house to flip is a massive investment. If something goes wrong, losing money is a possibility, at times to the tune of thousands (if not tens of thousands) of dollars.
However, with some care and proper planning, it is possible to flip a house successfully. Then, if you purchase another property and keep flipping, supporting your retirement through house slips is an option.
Consider the Costs of the House
To flip a house, you need to purchase a property that requires work to reach its full market potential. Additionally, you need to focus on homes that, once you pay for repairs and upgrades, is worth substantially more than you put in.
Often, the best way to begin is to find a property with potential and buy it with cash. This eliminates mortgage interest and certain fees from the equation, increasing your profit-making capabilities.
Being realistic and knowledgeable about the actual costs and potential earnings is also critical. Many flippers forget how much closing costs and realtor commissions can run, and they both impact profit margins.
Similarly, not knowing the market can come back to haunt you. You need a realistic picture of the homes potential resale value when complete, a process that usually begins by examining comparable properties, or “comps,” that recently sold in the neighborhood before you make a purchase. If you use an agent to buy the house you plan to flip, they can help in this area.
Additionally, you need to be able to fund all of the repairs and upgrades with cash. Again, this is about avoiding debt, interest, and fees, all of which can eat away at profits.
Plan for Repairs and Upgrades
You’ll need to set a budget for your flip and estimate the costs of repairing the property. This includes both products and labor, as most flippers don’t have the expertise to manage every kind of repair themselves, at least in the beginning. While cosmetic changes, like paint, are fairly easy to take on, electrical, plumbing, structural, and roof repairs usually require a contractor, and their labor comes with a price tag.
Before you complete the home buying process, get a home inspection at a minimum. You may also want to pay for specialty inspections, such as by having a plumber send a camera through the pipes or an electrician to evaluate the wiring, as issues behind the walls may not be caught during a traditional inspection. Then, you’ll have a solid idea of what repairs are necessary beyond cosmetic improvements and can get quotes for the work or plan for expenses for projects you take on personally.
Once the core work is done, you also need to take care when choosing other upgrades. While hardwood floors, marble counters, and soaker tubs may be the dream, you need to make sure that high-end finishes will land you a solid return. Otherwise, you risk over-improving the house for the neighborhood, and that can lead to losses.
How Do You Set a Sale Price?
Once the work is done, you usually list the home for sale with a realtor. By getting help from a professional, they can help you pick a suitable price according to current market conditions. Plus, they act as an objective third-party. Since you put in some much time and effort, you may have an emotional attachment that clouds your judgment, leading you to think the house is worth more than it is realistically.
How Do You Use Flipping to Retire?
Usually, you can’t fund a retirement with a single flip. Instead, once you sell one property, you move on to another, either using your profits from the first to reach higher value markets or investing your profits to save for retirement and sticking in the same zone.
Over time, you may even be able to slip multiple properties at once, accelerating your plan. However, it’s critical to always take the same level of care with each purchase and renovation, as falling quality will hurt your reputation and profit margins.
Have you ever thought about how to flip your way to retirement? Tell us about your experience in the comments below.
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