House flipping is practically an Olympic sport when the real estate market is booming. Real-estate addicts and aficionados scour the MLS listings looking for that diamond in the rough: a fixer-upper with the potential to turn a pretty penny.
But has the recent dip in the market put a damper on the flipping spirit? Not necessarily. In some areas of the country, flipping is back and bigger than ever, and women are the one's leading the charge. [More: Real estate realities & trends for 2012]
Think you've got the financial savvy to turn a profit on your first flip? The following are some important rules to remember...
Rule #1 — Make sure your situation is stable
The flipping real estate market has changed a lot since the beginning of the millennium. What used to be an all out free-for-all is now far more strategic and restrained. If you're thinking about making your move, be careful. Financial experts and mortgage brokers don't recommend that you enter the flipping market unless you are completely stable with your own income. You should also have a major emergency fund available, as well as enough cash in your reserves to avoid borrowing significant amounts from your lender. You'll also need a high tolerance for risk, a place to live, and nerves of steel. [More: A mortgage expert answers your questions]
Rule #2 — Don't gamble on your purchase
First-time flippers often think that the name of the game is buying low and waiting for the markets to rise. This is a risky gamble, and something you should avoid at all costs. Seasoned flippers purchase homes so they can renovate key rooms, reconfigure the layout and increase the home's value regardless of the market.
Rule #3 — Expect the unexpected
The flips with the most potential are usually older homes in need of a little elbow grease. A little deep cleaning, new paint, and updated lighting can go a long way to making a big difference. And while that might sound easy, remember — things are likely worse beneath the surface. Before you make a purchase, bring in a home inspector to check the property's foundation and wiring. Keep an eye out for leaky ceilings, cracks, and strange smells. If you decide to go through with the purchase, keep your eyes peeled for problems — there's almost always a surprise or two hiding in a flip. [More: Why you should live in a home before renovating]
Rule #4 — Don't overdo it
There is such a thing as over-renovating. Before you start swinging the sledgehammer, take some time to visit open houses in the neighbourhood. Learn what's on the market in your area and what's selling. Consult with a mortgage broker and a real estate agent to know what you should be spending, and how you should be spending it. Marble countertops in the kitchen might not be the best investment if the neighbourhood is known for attracting lower income buyers.
Rule #5 — Prepare yourself for failure
Most flippers begin their journey with a false sense of optimism only to experience the wrath of a flat market first hand. If you're going to attempt a flip, make sure you have a backup plan just in case things go sour. [More: The unexpected costs of moving]
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Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.
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