Skills required for home flipping: Part I

Thinking about trying your hand at home flipping (the process of buying a dilapidated or outdated home, bringing it up to code and style, and reselling it for a higher value)? It takes more than a good credit score and a willingness to open your checkbook. There are some essential skills homeowners must have if they plan on turning a profit in the renovate-and-flip game. In fact, the skills are so many and varied, I decided to devote two whole articles to them. Here are the first few skills you should consider developing.

The ability to estimate home value

This is a more complicated skill to acquire than you’d think. You can’t just look at a home and think, “That looks like about a $200,000 home. It’s selling for $120,000 so I could buy it, renovate it, and flip it with plenty of profit to spare.” There are strategies and mathematical calculations that go into determining home value and being able to see its potential. Barbara Cranford, a real estate agent, said that beginners in the business should “seek assistance from experienced realtors and flippers and may want to have some appraisals of properties down to aid you in your education.”

You can also surf websites like Zillow and Trulia which list recently sold properties in a neighborhood and what they went for. You should make it your business to know what homes in the area you’re interested in investing in go for, what their most common amenities are, and what features make a home stand out from the others. Look at homes for sale and try to guess what they’ll go for, then check back and see how close you were. Cranford also said you could read books like The Appraisal of Real Estate so you know how professional appraisers work their valuation magic.

The ability to estimate construction costs

Without knowing how much different types of construction cost, you won’t be able to make an accurate estimate of whether a dilapidated home would be worth fixing up. You will still hire contractors to do give you estimates and do the work when you buy the home, but you should have a knowledge of approximate costs as well. Some basic estimates you should know, according to Cranford, are “the installed cost of flooring, sheetrock, kitchen cabinets, wiring, plumbing, [and] decking.”

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In your experience, how accurate have you found Zillow valuations or “Zestimates” to be?

In the past I have used Zillow to bird dog for investors. I feel the estimates can be in the ballpark but can be off $20,000. This means that these numbers should not be used when deciding to buy a flip.

As far as flipping itself goes the most important number to start with is the comps. The best way to get this number is to have a licensed real estate agent who has access to the MLS give you the most recent sales of similar homes in the area. Then you want to take 5 to 10 of the most similar homes and add up there value and divide by the number of total homes, this will give you an accurate average of what you could sell the home for when its fixed.

After that, you want to determine how much money will need to be put into the home. The main things to look at are what will cost you the most. For example, the roof, electrical, plumbing and foundation. If you have no construction knowledge then get a few different estimates from professionals and go with one you can trust.

If you feel after the purchase and the repairs you can make a substantial sum in a sale then go for it.