Our Swissvale house before renovations.
One strength Ted and I share is the ability to see the best in every situation, making us optimistic and hopeful people. This is a nice way of saying we take on more risk than most people find reasonable, but our belief in each other has blessed us with four beautiful children and a healthy business building our local communities.
Late in 2018, we were daydreaming about our future goals when an opportunity too good to pass up came our way. There was a neglected house for sale in Swissvale, and we knew that, thanks to our history of renovating houses, we could purchase and rehab the house for an aspiring Pittsburgh homeowner. While we are optimistic, we aren’t totally crazy! Before making our purchase we carefully evaluated the opportunity against the risk, and we measured this against our available resources.
If you’ve been on the fence about flipping, here are some tips & tricks for your own consideration.
How to Flip a House
Flipping a house is a great way to supplement your income. Back in 2016, the average flipped house netted nearly $60,000 in profit! Pulling in that much money doesn’t happen accidentally, however.
Here’s what you should do to successfully flip a house:
1. Assemble Your House Flipping Team
An honest, dependable team is especially important on your first few flips. First, you need a real estate agent who knows the market well and can help you find a bargain. Next, you need a network of contractors who can help you determine how much repairs are going to cost. An honest contractor is invaluable, especially if you’re on the fence about whether or not you want to handle the work yourself.
2. Buy at the Right Price
The point of a flip is to make money, and that requires buying low and selling high. A good rule is to buy at 70% of the home’s After Repair Value (ARV) minus repair costs. As an example, say you believe the house will be worth $200,000 when you’re done working on it. Its ARV is $200,000. In addition, you plan on investing $30,000 in repairs. Here’s the math you’ll want to follow:
$200,000 * 0.70 (finding 70%) = $140,000
$140,000 - $30,000 (subtracting the cost of repairs) = $110,000
Under this rule, you shouldn’t buy the house for more than $110,000.
Determining the After Repair Value is tricky at first, so it pays to have a team working with you.
3. Work With Cash
The more cash you have on hand for this project, the better. For every day you spend working on the house, you’re accruing interest on a loan, and that interest cuts into your profits. Start your flip with as much cash as possible to reduce your interest burden.
4. Work With a Budget
This is where your assembled team becomes crucial, as they’ll help you in those regions you’re less familiar with. Contractors can give you a good idea of how long a project will take—important if you’re thinking about doing it yourself (though they’ll likely be faster than you!).
Don’t forget about sweat equity. Completing the work yourself may be time-intensive, but it can save you a bundle on labor costs. When we fixed up our basement, for example, we increased our home’s value without hiring a contractor.
Just hold a thorough inspection beforehand so there are no unpleasant surprises down the road!
5. Stick to a Schedule
When you’re flipping a house, time is your worst enemy. For every moment you haven’t sold the house, the marketing is changing and you’re racking up utilities, taxes, and insurance. Flipping a house is a serious financial and time investment, so block out each project and know exactly how long it’s going to take.
The expenses become even more complicated if you’re working with contractors. We’ve all heard the horror stories of contractors who go weeks or months over schedule, even for simple jobs. This is another good reason to vet your contractors before signing on with anyone. Research each contractor to ensure they have a history of meeting deadlines, communicate well, and get along with other professionals.
Sticking to a schedule requires the ability to manage other people. You’ll need to put pressure on contractors and suppliers who are dragging their feet.
6. Stick With Cosmetics the First Time Around
If it’s your first time flipping, stick to cosmetic updates—new flooring, paint, fixtures, etc. This will let you acquire some valuable experience without overwhelming yourself in the process.
While bathrooms and kitchens are popular rooms to remodel, they take huge chunks out of the budget. A better option: refresh your cabinets, swap out counter tops, and replace those old appliances.
At least for your first few flips, avoid houses that have structural or mechanical issues. These may require permitting, and that adds on an extra layer of complexity that many first-time flippers aren’t ready to take on.
7. Know Your Market
Selling a $250,000 home will be tough in a neighborhood full of $150,000 properties. Connect with a real estate agent you trust who can give you a good idea on what a house should go for, as well as the prices of other homes in the surrounding areas.
8. Talk to a Realtor
Just as we’re thrilled to flip our Swissvale house, we love working with others to show them the path to success. If you have questions, contact us (email: theblocks@theblocksintheburgh.com, phone: 412.926.7976)!
Cheers,
Julie & Ted