House Flipping Checklist
One of the current trends in real state investment is house flipping. House flipping refers to real estate investment through buying a property, renovating it, and selling it for profit. House flipping repairs can be functional, structural, purely cosmetic, or a combination.
Some of the things replaced during house flipping are bathroom and kitchen upgrades, trim and paint, window replacement, and flooring replacement. There are other things to be done before and during house flipping too but these are the most common that add value.
Let’s jump into a checklist with some of the steps you should use to ensure your house flip has the highest chance of being profitable.
#1 – Research the Real Estate Market
It’s important to start off researching the real estate market you plan to flip houses in. Understand what types of properties exist in this real estate market and what property types are highest in demand.
Doing market research will also enable you to understand your target neighborhoods.
Neighborhoods are referred by class ranking from A to D. Class A neighborhoods are the wealthiest housing markets occupied by higher-income professionals. Class B neighborhoods are middle-class housing markets. Class C houses have a working-class, blue-collar feel, and class D caters to the lowest income earners.
Consider how much money you have to work with and what market you can afford to flip your first home in. For most house flipping beginners, consider choosing a class C or class B property for your initial deal. This will be the stable working-class or middle-class neighborhoods, respectively.
#2 – Start Marketing and Deal Hunting
Decide on a deal-finding strategy to use. Will you use a direct mail campaign or local wholesalers? Will you bid at foreclosure auctions or real estate tax lien auctions? Will you check on properties listed on the MLS or go for off-market deals?
Consider what strategy will work for you in helping find the types of house flip deals you’re seeking.
Identify lenders for financing your strategy and get a pre-approval letter from them to submit along with your offer. Also, use a contractor or a real estate agent to help you understand how much work needs to be done when previewing houses.
The sub-checklist for finding a good deal is:
- Pick a deal-finding strategy
- Evaluate prospective properties
- Line-up lenders that support your strategy
- Get pre-approval letters from your first-choice lender
- Create a network of contractors
#3 – Make Offers
As you find suitable properties for flipping, submit offers. You may submit several offers before one is accepted so have patience that the process of buying may take some time.
Have a firm ceiling price for negotiation before placing an offer. Have accurate numbers concerning the property so you can make sure it profits and gives you a target purchase price to aim for if the deals going to work.
Start by asking questions…
How much will the renovations cost?
What other soft costs come with buying and owning the property?
Then get quotes from different contractors and ensure that they include dumpster rental and permit costs. Also include miscellaneous costs to cater for extra expenses in case the house flipping project goes over budget.
The sub-checklist for making offers includes:
- Work out all the approximated expenses and anticipated profit
- Get quotes from contractors- for accurate renovation cost estimation
- Have a firm ceiling price (max offer)
- Make an offer
- Negotiate and only agree to a deal that suits your budget
#4 – Organize Your Financing with a Business Plan in Place
You need to know your budget for the renovation, the scope of renovation you are comfortable handling, and the timeline for getting the work done.
Use the 70% rule to finance your budget. This rule states that an investor needs to only pay for 70% of the after-repair value (ARV) of a property minus the cost of necessary repairs. The home is worth the after-repair value after it is fully renovated.
Explore your financing options and get a pre-approval from your lender. Some of the available options are conventional loans and hard money loans. Hard money loans charge a higher interest rate than conventional loans, but they come with several pros.
Hard money loans can fund up to 100% of the renovation costs, are flexible, and use a customized draw schedule. Once you get a lender, give them all the details of your deal to get started.
Here is a guide on creating your business plan.
The sub-checklist for organizing your finances is:
- Have a business plan
- Know your budget
- If you intend to use a lender, get one that meets your needs
- Furnish them with all the required information
#5 – Schedule a Property Inspection
After your offer is accepted, your lender will do appraisals and title work orders. Get utilities like water, electricity, and gas turned on and set up auto-pay for those bills. Organize for a property inspection with the home inspector, to do a thorough inspection of the property. Add any additional inspections not covered by the home inspector like a separate roof or sewer inspection.
If there are any new issues discovered by the home inspector, you need to decide; (a) whether to move forward with the correct and detailed scope of work, or (b) request for changes to the sales agreement, or (c) cancel the contract completely.
The sub-checklist for scheduling property inspection includes:
- Schedule home inspection
- Scrutinize your prospective contractors
- Renegotiate sales contract
- Chose a contractor
#6 – Buy the Property
Confirm a closing date with the seller and your lender. Before settlement, get a copy of the HUD-1 statement.
The HUD-1 settlement statement is a detailed breakdown of every cost and payment for both the seller and the buyer. It shows your estimated costs to close and how much money needs wired to the closing.
On settlement day, bring your photo ID and the days before, wire the remaining down payment and closing costs to the escrow account so they’re available on closing day.
Once the purchase is done, change the door locks to ensure anyone with the old key cannot enter the property.
Buying the property sub-checklist
- Closing the date
- Before settlement, explore the HUD-1 settlement statement
- Prepare required documentation and closing funds
- Make key copies and give them to the contractor
#7 – Get Ready for Renovation
Part of preparing for renovation is having a contractor and other professionals like a plumber and an electrician on hand to schedule repairs with after you agree to the scope of work and price they’re charging.
Sign the repair contract with the contractor(s) and give a material deposit if required. Ensure utilities are turned on if needed by the contractors and make sure the utilities are in your name.
Make sure these utilities are in working condition, which should have been handled already during the inspection phase of the purchase process.
Get all the necessary permits (work with the contractor to get them) and safely keep the copies. Get a portable toilet and a dumpster for any trash.
Know the home improvements that will add value to the property. Doing this will ensure all repairs made will generate a return to you.
You may also need a house rehab checklist.
Pre-House Rehab Checklist
- Sign the contract with your contractor
- Turn on utilities to ensure they are working
- Ensure utilities are under your name
- Order for a dumpster and portable toilet
- Take “before” photos
#8 – Renovate
Time management critical at this stage. Have a draw schedule with both your lender and your contractor. Once the first draw is done, your lender and an inspector confirm all work is completed to facilitate reimbursement. Have deadlines for each draw.
Visit the site regularly to ensure the contractor is on schedule and within the budget. Organize for inspections in advance and involve your realtor in the renovation process. As renovation draws towards completion, schedule a walk thought with them to facilitate the formation of the final to-do list.
Once the renovation is complete, you will do a final walk-through with your lender’s inspector and the contractor to facilitate the final draw reimbursement.
House Rehab Checklist
- Do regular site visits
- Organize for draw inspections in advance
- Plan for inspection in advance
- Work with your contractor and realtor on amenities, finishes, and final to-do list
- Schedule a final walk-through with your lender’s inspector and contractor for the final draw.
#9 – Sell it
The final step for house flipping is selling it. Get your realtor’s opinion on the after-repair value and pricing. Your realtor will handle the marketing for you.
They will post “for sale” signs, list the property on MLS or hold open houses. Evaluate the financial upside of a home warranty and be in contact with your realtor to get feedback from prospective buyers.
Overall, do your due diligence before getting started on any deal. Have a business plan, organize your financing, get the perfect contractor and learn how to market your finished property. Always sell the property for a profit.
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