The concept behind house flipping is simple. Buy a distressed home at a bargain price, fix it up at a reasonable cost and sell it for a profit. Sometimes it works, sometimes it doesn't. The difference between a successful house flipping venture and a disastrous one is a realistic idea of how much repairs will cost compared with how much the investor can reasonably sell the updated house for.
Fixing the Basics
A house flipping venture should start with basic repairs the house needs. This includes such things as repairing damaged floors, checking the furnace and air conditioning units, replacing worn roof shingles and so forth. According to Old House Web, replacing a furnace or air conditioning unit costs between $1,500 and $3,800. Repairing wood floors costs as much as $3.30 per square foot; vinyl flooring costs as much as $5.34 per square foot; carpeting costs up to $6.61 per square foot to install. Shingle replacements cost $1 to $1.75 per square foot.
Remodeling the Kitchen
The kitchen is the hub of any home, and remodeling it adds to the value of the home. The cost starts around $8,000, says Old House Web, but it can go up significantly from there. In fact, according to CNN Money.com, a major kitchen overhaul can cost upward of $50,000, and if you're looking for luxury, it can be as much as $100,000 or more. Using neighboring housing as a yardstick is a good way to determine how much you should invest in the kitchen.
Curb appeal is so important in house flipping that a television program was created about it. Though adding curb appeal -- including having the lawn landscaped and the siding replaced -- may not add to the house's value, it does help the property sell faster. Vinyl siding replacement costs around $9,000, according to CNN Money.com, and having the lawn regraded costs between $500 and $1,500, according to Old House Web.
The House Itself
Consider the mortgage before investing in a property. If a home costs $60,000 and needs $30,000 in improvements, you'll have to sell at higher than $90,000 to profit. Additionally, while you're remodeling the home, you're also paying interest on the mortgage. Although part of that interest is tax-deductible, not all of it is. After selling the house, you'll also be responsible for paying income tax on your profit.
Give a Hand
The best way to make a profit as a house flipper is to have a thorough understanding of the money involved and be able to do some of the work yourself. Real estate professionals call this "sweat equity," which means you're investing work rather than money by taking on tasks you would otherwise have to pay for, such as painting, laying carpet or tile, replacing shingles and installing sinks.
- single family home image by Karin Lau from Fotolia.com