How to Flip a House: Don’t Make This Rookie Selling Mistake
Now for the best part of learning how to flip a house…selling!
No doubt, one of the most exciting parts of house flipping is selling. It’s the culmination of months of work and many house flipping steps. You raised some money having learned how to flip houses with no money, you bought the property, you repaired it and rehabbed it and now you’re ready to sell it.
Way back when you were first starting out in assessing the house flip, you determined the ARV and with the house done, you are ready to list it with a real estate broker.
It’s an exciting time. You’re looking forward to cashing that big check, and cash in on all that hard work you’ve put in over the past three to six months. Enjoy this time!
Here's a video on the Most Exciting Part of Learning How to Flip Houses[youtube]http://www.youtube.com/watch?v=m-HRm-hKef8&feature=plcp[/youtube]
How to Flip a House…Remember ARV?
We’ve talked about ARV or after repair value multiple times here on the blog. The ARV is the expectation of price you had when you first bought the house. This ARV number is the number that’s the most important one in all of house flipping.
Think about it…if you don’t know what you can sell a house for, it doesn’t matter what you buy it for. If you buy a house for $60,000 or $70, 000 (which sounds pretty good) but you can’t sell it for even $80,000, chances are slim you’ll make do well flipping houses for profit.
So ARV from six months prior is an important number to keep in mind for sure. But the real number as to what the “after repair value” is now. This is the number of what you can sell the house for today.
Listen to (and be Loyal to) Your House Flipping Team
So your real estate broker tells you that the house can sell for $200,000. She got this price through a competitive market analysis using compilations, or otherwise referred to as “comps”. At six months after the start of the house flipping project, the house is looking great and you’re feeling confident that you can get your price. All you need now is a buyer.
So because the broker tells you the price should be $200,000, do you go out and list the house for $200,000?
Especially when you’re first learning how to flip a house, and even if you’ve flipped dozens of houses, always get the advice of your team. Selling is the time to get your real estate broker involved, ask her opinion and lean on her advice. No one knows the market better than she does.
Ideally, the real estate broker may be the same broker that you worked with early on when finding your first house to flip. And if you’ve agreed to list the house with the same broker you found the house through, now is the time to show your allegiance to them and keep your word.
This alone will do much for your house flipping reputation. It shows them that you’re credible, because you promised them the listing in the end. So if you made this tacit agreement to start, don’t start shopping around for another real estate broker; this is your credibility at risk.
Keep your word and keep your reputation. Word travels fast in the local house flipping world, so keep your word and your reputation in check.
How to Flip Houses Using The 70% Rule
Now’s the time for your real estate broker to do the current competitive market analysis. Like most house flippers, you’ve been keeping an eye on the market so you probably have a good idea as to what the new price might be…but the truth is in the numbers.
Two things could happen: the market analysis could come in on a higher number than your original ARV or it could go lower.
If it’s the latter, that’s when the 70% Rule will save you.
When you use the 70% Rule when first learning how to flip a house, you’ll have flexibility for any downward momentum if it occurs. So it’s not the end of the world if the market analysis comes in lower than your projected ARV.
Market Fluctuations Are a Part of House Flipping…But Stay Calm
Unanticipated market fluctuations are one of the main reasons why we want to learn how to flip houses quickly. Because when you don’t hold onto them too long, there’s less chance of market downturns affecting your profits. In the unlikely event that you get caught in a downward market cycle, the 70% Rule gives you enough flexibility to absorb that cost.
So let’s say your real estate broker determines that the market value is $190,000 – down $10,000 from your original ARV projection of $200,000.
Initially, especially when first learning how to flip a house successfully, this is not good news.
Don’t panic. Rely on your advisers.
The tendency of most house flippers is to dig in your heels. The tendency is to list the house for $200, 000.
Don't Make This Rookie Selling Mistake
Do yourself a huge favor and listen to your real estate broker. The reason is that if you list the house too high, you’ll end up carrying the property longer…and losing more money in the process.
If you have a loan with an interest rate of a couple of thousand dollars a month, these “soft costs” add up quickly. And as those costs add up…your profits go right out the window.
This is why building a solid house flipping team is so important. Listen to your real estate broker. The idea is to sell the property quickly, and move onto the next one and keep profiting all the way along.
And that is how you learn how to flip houses for profit.