Thinking of Flipping Properties for Your Next Real Estate Project? Four Tips You Should Know

If you have ever watched any of the popular home restoration, improvement, and decorating shows, you have likely seen shows that involve "flipping" properties. This is where people buy a piece of real estate that is in poor shape, make the necessary repairs, and then sell it for a considerable profit. If you have been considering one of these new real estate projects, you should be aware of these four things.

Use a Buyer's Agent

When you want to make money off of flipping a home, you need to find the right home, for the right price, in the right neighborhood. No one is going to know more about the direction a neighborhood is heading and what constitutes a good deal than an experienced real estate agent. Using a buyer's agent will help shorten your search as well as prevent you from buying the wrong house.

You Will Need Working Capital

There are many different paths to home ownership. The federal government sponsors programs for first-time home buyers, low-income home buyers, and other programs that reduce the amount of down payment required. However, there are usually rules stipulating the purchaser must occupy the home for a certain amount of time before they can sell. The required primary occupancy is usually a minimum of one year after closing. Therefore, most people who are looking to flip a home as an investment real estate project will need to have a 20 percent or higher down payment for a conventional loan.

Don't Forget the Costs Associated with Home Ownership

You may not be living in the house, but you will still need to pay the taxes and insurance on the property while it is in your name. The same applies to the utilities. Water, sewer, heating and cooling, electricity, and will need to be up and running while you work on the property.

Additionally, you will likely have other expenses associated with restoring the home. For example, you may need to rent a dumpster or purchase a gas generator and fuel so you have power while the electric is being upgraded. You may also need to rent a portable bathroom as well. When it comes time to sell, you will have real estate expenses, such as the realtor's commission, marketing expenses, and legal fees. These expenses are all going to reduce your profit.

You Need a Good Contractor

No matter how handy you are, chances are, you can't do everything yourself. There's a reason the television programs frequently show them using the same general contractor over and over—you need to have a good one, and good ones aren't always easy to find. The contractor needs to have an excellent grasp of how much things cost, whether it be materials or labor. Without accurate estimates, your profit margin may be in the red by the time your flip is done.