So you want to make money flipping houses. You also want to do it without taking any big losses. Here are three important rules for flipping those properties profitably without taking unnecessary risk.
Know the Value:
The most important thing is to know what the house will be worth when it is finished and ready to be sold. This is not a science, those who can estimate most accurately will make the most money with the least risk. After all, it doesn't matter how cheap you get the property if you then spend too much for repairs and other costs, you'll only know how much is too much if you have a clear idea what the final sales price is likely to be.
With that figure in mind (don't be afraid to ask for help if you don't know how to do this), you can determine whether there is a decent profit. You just work backwards, deducting all projected costs as well as the profit you want. This determines what you should offer for the house.
Have a Plan:
People buy fixer uppers with no idea what they were going to do with them. They just thought the price was right based on some gut feeling.
There are people that buy projects and sit on them for years, losing money every month. When you look at a house, decide what you can do to make it sellable, and then determine the cost of doing these things. Then refer back to "Know the Value" on this list.
Have a Back-Up Plan:
If you really want to be safe you need to have contingency plans. What if the market softens while you're working on the house? Can you rent it out until times get better? What if you can't get the loan you planned on for repairs? Can you find enough money to do a cheaper faster fix-up so you can sell the property before holding costs eat up the profit? Plan well, but also plan for the problems you might have when flipping houses.
