Buying and Selling in a Changing Real Estate Market
Suppose you are the handy sort and have done a little remodeling. You have a friend who flipped a house and made $50,000 in profit. Sounds like easy money. So you start searching for a home to buy and fix up with visions of spending your profit on that new boat you’ve been eyeing. But before you file your flight plan and put down cash out of your home equity line to purchase that fixer-upper, it might be wise to consider all that goes into flipping a home, and then determine if it’s the right fit for you.
The national and regional housing market has taken off since early 2020, dramatically changing the way some real estate professionals sell a home. That rings true for those who are house flipping, a type of real estate investment in which a person purchases a property not to use, but rather to sell for profit. I called 30-year veteran house flipper and investor Chuck Ward to find out how to tackle this line of investment, both now and in the future. And at the top of his list of advice? Be honest, do your homework, and keep following vital, time-tested practices. Let’s dive in.
What it Takes to Flip Houses
Ward came into this line of work while “remodeling a past home of my own and thought house flipping would be a great way to make some extra money,” he says. A Knoxville native who owns Chuck Ward Real Estate Investments, Ward has flipped more than a whopping 1,500 houses in the Knoxville area since beginning in this profession, and continues to thrive in this environment. People come to him often, seeking guidance on flipping homes or “wholesale real estate investing,” as the business is sometimes called.
However, this is anything but simple work. “In this work, you’ve got something every day to deal with. Remodeling and flipping are always a lot of work, and I’m fortunate to have a great team,” says Ward. “I like it because it’s challenging, and after giving a project so much love, you see an old, dilapidated house turn into a beautiful place to live.”
Although this can definitely be a profitable business, this is not a get-rich-quick scenario. So, what are the steps to becoming a successful house flipper? Ward’s answer is quick and firm: do your homework, and be ready to buy when the opportunity arises.
An outgoing, friendly personality works best in house flipping. “Whether you’re flipping houses or selling Tupperware, being able to negotiate and talk with people is necessary,” Ward says.
Loving the Deal, and Sticking to Your Budget
First and foremost fall in love with the deal, not the house. Create a budget of what it will cost to make the repairs necessary to maximize the sale price, and see if you can generate enough profit to take the risk. Yes, there is risk in any real estate investment. Ward says to make sure you “have available the money to buy a property through a loan or bank credit letter,” adding that it’s essential to ensure you also have the down payment to close on the property you’re looking to buy.
Many people access existing cash or lines of credit to purchase without the benefit of the guidance of a title company. There is no question that title insurance should be acquired prior to or contemporaneously with the purchase to avoid previous liens, claims, or disputes.
As eager as you might be to get into a home and start flipping, Ward warns against several temptations that can arise this early in the process, including skipping a home inspection and overpaying for a property. “I’ve overpaid for a few properties by mistake,” he says. “And if there’s a foundation, roof issue, or any other problem, a home inspection will show that.”
Once you eventually purchase the home, you will start the renovations it needs in order to sell. Ward recommends putting in the time, but being smart about how you go about it. It’s best not to get emotionally attached. “Because you’ll lose money,” he says. And at all costs, stick to your budget. “You can’t get that back,” Ward warns. “Stay within your budget—based on the current value of the house you’re remodeling.”
Plan, Plan, Plan
Just because you can do it yourself doesn’t always mean you should, especially if you’re new to this business. Seek advice from professionals, and put together your list of people and contractors who can help you in all areas of home renovation. Everyone has heard the old adage “location, location, location” when it comes to business. Well, when it comes to speculative real estate investing, planning is key.
If the home needs any walls moved or structural work, you should consider consulting an architect or home designer before beginning demolition. Buying a few hours of their time could save you thousands later.
Most would agree that there are some key factors that contribute to a successful sale and since that is the objective you should plan accordingly. You never get a second chance to make a first impression and the same goes for your house. You can keep it simple, but it needs to look inviting. Aside from fresh paint, consider replacing windows. According to Alyce Greitzer of Home Choice Windows and Doors, “New windows not only add to the beauty of the home, they increase the energy efficiency.”
The kitchen and bathrooms get quite a bit of attention from prospective home buyers. Since most people spend the majority of their time in the kitchen—and it is most often the most expensive to remodel—that’s a good place to start. Cabinet shops offer a variety of contractor-grade cabinets that can make an attractive space while also keeping you on budget. It helps if your cabinet dealer has a full shop to do minor customization, “Adding little touches like crown molding or light rails can make a simple cabinet look polished without drastically increasing the cost,” says Dick Coffey of Dixie Kitchen.
Most likely you will also need to replace the appliances. “Stainless steel appliances give any kitchen a fresh new look, and they seem to have a timeless appeal,” says Mark Patterson of Patterson’s Appliances. And don’t shy away from reaching for the granite counter-tops. These can give that feel of elegance and sophistication you want in the home’s kitchen, but they don’t always have to cost a ton. You can often find remnant deals at local shops if you hit the shop at the right time.
When it comes to the bathroom, there is no question that a professional will be worth the money, especially if your flip requires tile-work of some kind.
Navigating the Current Sellers Market
For Ward, business in the middle of a pandemic has been good, though it’s not been without its changes. Instead of flipping 30 or more houses in one year like he typically might, Ward wants to complete 8 or 10 this year. He is working on three projects now and has recently looked at several more properties.
“That’s almost one a month, and they are bringing more money than ever,” he says. “I knew the market was going to heat up because the inventory was getting lower and lower. People were having a hard time renting and buying a home in Knoxville, Sevierville, and Maryville.”
But what about for the first-time house flipper? Is now the time to get started? Ward’s advice is to sit tight. “This is not a great time to try this business as a new house flipper,” he says. “Wait until the market cools a little bit. Inventory is low right now, prices are high, and building materials are expensive.”
So while now might not be the time to start your flip, it’s certainly a good time to start preparing. That also includes identifying what it will take to sell the house once you’ve completed repairs. According to Peyton Cherry at Keller Williams Signature Properties, you should compile accurate information about the floor-plan and consider having the house staged for photos. “Staging really amplifies all the hard work you have done to make the home shine,” he says, adding “and if you’re not experienced in sales I recommend hiring a competent realtor to assist. By listing the property, you make it available to all realtors through the Multiple Listing System.”
Many people in the house-flipping business sell without the assistance of a licensed realtor, as you are not required to have one to sell your property, but utilizing the knowledge from a real estate professional would ensure that all the rules are followed and should lessen any potential liability post-sale. Ultimately, though, the choice is yours.
Pulling it all together
Remodeling a house and making it new again is the most fun part of the business, Ward says. It is a big process and there is a ton of competition, but if you’re willing to put in the work, do it right, and stay honest with potential buyers, there’s no telling where you might end up in this field.
You might remain a hobby house-flipper doing the occasional house on the side, or you might end up like Ward and turn your newfound love of flipping houses into a thriving business.