One great investment strategy that's always proved popular is flipping houses and condos. Those who have the cash to take older, run down properties, spruce them up and find a new buyer can make a small fortune in a matter of months. But it's not as simple as all that, and anyone just getting into this game needs to be aware of the risks and costs associated with it.
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- Be conservative, not optimistic. Those new to the flipping game often make the mistake of underestimating the cost to renovate a house. For those with experience, it's well known that building new is often more cost effective than renovating. There is real cost associated with removing old materials before new materials can be installed. When building new, you don't have the cost of tearing out the old materials nor the cost of disposing of them. Be sure to include this cost in your estimate.
- Understand the neighborhood. As a house flipper, one of your key strategies is to get in and out of the house as fast as possible. That means you want to offer the best house in the neighborhood at the best price. You don't always have to put stainless steel appliances in the kitchen and a hot tub on the back porch. However, if that is the standard for the neighborhood, you do need to include them if you expect a fast sale.
- Your personal tastes don't count. You need to clearly understand your target buyer and remodel with them in mind. Generally, you want to stay with neutral colors for paint and carpeting.
- Your primary targets are the kitchen, bathrooms, and master bedroom. Cleaning and sprucing these up are the fastest way to make a profit. However, don't over look the curb appeal. If the first sight of the outside of the property turns off potential buyers, they'll only be looking for problems on the inside instead of seeing the improvements.
- It's not all about the renovation work. When creating a remodel timeline, consider the paperwork involved. The most important are the work permits. Not only do you need to apply for these well before work is scheduled to start, you need to know how to properly fill permits out. Otherwise, you could be facing work stoppages and extra costs when you have to reapply for corrected work permits.
- Learn about the house flipping business before jumping in the deep end. Start with a house that only needs cosmetic repairs to begin learning the process. You may not make a huge profit in money but the learning experience is well worth the work.
- Always expect the unexpected. In every flip, something unexpected is almost certain to come up. It's another reason to be conservative estimating costs and time. Whatever comes along it's either going to cost more money or more time than you originally estimated.
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Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.