Flip or flop? 9 things to know before you start flipping houses

A knack for DIY and a fondness for shows like “Flip or Flop Atlanta” is only the start of what you need to begin flipping houses yourself.

"You must first have a clear understanding of what it is," Sky Five Properties CEO Kaya Wittenburg wrote in Realty Times. "It's not like those addicting home improvement shows. You can't just find a dilapidated house, break down a wall with a sledgehammer, find a vintage couch at a garage sale and sell the home for four times what you bought it for."

»RELATED: 4 of the best ways to turn your home into a cash cow

According to Wittenburg and other real estate and personal finance experts, to start flipping houses, you'll need a little luck and these nine practical things:

An understanding of how flipping now is different from flipping then

"The house-flipping trend died down following the housing crisis in 2008," Wittenburg noted.

As of early 2018, though, home prices are rising and there was a 3 percent increase in homes flipped over previous years. But this isn't like the pre-2008 flips.

"House flipping in the early 2000s involved people buying a house and then sitting on it waiting for the price to rise," Wittenburg said. "Now, however, house flippers are getting their hands dirty and doing major upgrades to increase the value of the home."

Time management skills

According to Wittenburg, the average time it takes to flip a house is about 3-6 months. That's how long you'll have to complete the upgrades that will appeal to sellers without dumping a lot of your own money into the project.

The ability to recognize a good house to flip

In a guide updated in December 2017, Remodeling Calculator noted that people who want to get into the flip market need to know how to spot properties that offer good value, not merely a low price.

"Rushing into buying a foreclosure only because its cheap often becomes a bottomless money pit."

A steady source of financing

"You need to be sure that you will have enough money to fund the entire process, from making a down payment to paying real estate broker fees when you go to sell," according to Remodeling Calculator. Remember to budget for the monthly mortgage payments and utility bills you'll pay until the house sells.

The cost of renovation

One of the biggest outlays is the cost of renovation, which pros told Remodeling Calculator averaged $15,000-$25,000 on a basic fixer upper.

"One of the biggest financial pitfalls is running out of money during the remodeling stage," they noted. "Ideally, you should have 15 percent-20 percent of the sale value of the house set aside for renovations."

Building permits

You can end up flopping as quickly as you'd hope to flip if you neglect to get the required building permits. Bear in mind that only a licensed contractor will be able to obtain permits.

"Without a building permit, the town has a full right to request that the project be removed and the home be returned to its original state. They can also put a halt to your project, and impose fines, until appropriate permits are obtained," according to Remodeling Calculator.

Remodeling contractors at the ready

"One mistake newbies make is looking for remodeling contractors after they already purchase a home," Remodeling Calculator noted.

While that's logical if you're purchasing a home for yourself, when flipping, you want to resell as quickly as possible and scoping contractors stalls the remodel. At the same time, being in a hurry destroys your negotiating power with contractors.

"They will sense you are on a very tight schedule and have limited options, and will definitely up-sell their services. Start looking for contractors way before you even start searching for a property."

A real estate broker who specializes in the house flipping market

You'll be competing with professional builders and you may never see potential houses because they're quickly sold to well-connected pros. And while you can start your search on websites like RealtyTrac, Trulia, Foreclosure.com and Homefinder.com, Remodeling Calculator also recommended finding a broker who specializes in this market.

An eye for newer homes that mostly need cosmetic changes

If you don't have experience with flipping or remodeling, Remodeling Calculator warns against picking up older homes. Even pros don't want homes older than 100 years and newbie flippers should stick to much newer properties. "A very old house will have very costly electric, heating, plumbing and other issues," Remodeling Calculator cautioned. "Taking this high expense into consideration, such a home will not end up bringing a high return on investment, and may actually result in losses." Instead, vie to flip homes that mostly require new paint, flooring, fixtures and so forth. "You make the most money when the majority of the updates are cosmetic."

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