â€œThe best laid schemes of mice and men often go astrayâ€ â€“ Robert Burns, â€œTo A Mouseâ€
Real estate investing can have an enormous amount of unpredictability. You never know which way the market is going to turn, or what problems could arise when buying, rehabbing or selling a property. To eliminate this unpredictability, you should do the proper research and get rid of as many variables as possible. If you fail to do this, you will be at risk of sinking your venture.
One of the most common reasons that newcomers are scared away from the idea of house flipping is the risk. Many people believe the old saying â€œthe bigger the risk the bigger the rewardâ€ is the be-all and end-all of real estate.
For most regular folk, especially beginners in house flipping, risk is a dangerous word, that could mean the loss of your lifeâ€™s savings, or falling into a deep pit of debt.
Donâ€™t roll the dice on a project. Instead, lay out a house flipping business plan, outlining your risk-free strategy. Leave the risk to the hedge funds and the wealthy that can afford to take a loss on a property.
The 5 Steps To Eliminating Risk | House Flipping Business Plan
While there is always some risk involved, you donâ€™t have to let it control you. Instead, if you know what youâ€™re doing, you can take the proper steps to eliminate most of the risk.
Stick To The 70% Rule
As a real estate investor, one of the most important pieces of information before you buy is the ARV of the property. As you probably already know, the ARV, or â€œafter repair valueâ€ is the approximate amount of money that the house will be worth after it is renovated.
The rule of thumb is that you should almost never purchase a home for more than 70% of the ARV. If you do, thereâ€™s a good chance that you wonâ€™t profit.
A lot of factors go into determining the ARV of a home, like the neighborhood, the town and the size of the property. A beginnerâ€™s mistake is to simply see what other homes in the neighborhood have sold for recently. While this is a good start, there may be a factor about your property in particular that you are overlooking. Maybe you saw that the house down the street sold for $300,000, but you missed the fact that that particular home faces a lake and has four bedrooms instead of three.
The best way to get an accurate ARV is by asking a trusted real estate broker in the area. These brokers are familiar with the town and are directly involved with the sale of homesâ€”itâ€™s their job.
Essentially, you want to go with a sure thing. Donâ€™t take a chance on a property that could lead you to crash and burn.
Always Use An Inspector
Sometimes, a property might appear to be perfect. It has strong bones and itâ€™s in a good neighborhood. Maybe itâ€™s a little rough around the edges but nothing to be worried about.
But what if thereâ€™s trouble that is hidden within the house? What if the electrical system is outdated, or the plumbing is about to go, or the ventilation system isnâ€™t being filtered properly? Thatâ€™s where the inspector comes in.
You might even consider hiring a specialist to check for things a carbon monoxide leak or high radon levels.
The only situation where you wouldnâ€™t have to get the property inspected ahead of time is if, within the purchase contract, there is a clause stating that the sale is valid if and only if there are no major problems after the inspection.
Get Estimates From Contractors Before You Buy
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