Ask any real estate agent in Los Angeles and they’ll tell you there are only two rules when it comes to house flipping: 1) Buy Low. 2) Sell High. It’s that simple. But what does it all mean, and where do most inexperienced house flippers go wrong when trying to renovate and resell a home for a profit? This article examines the mindset that’s necessary when flipping a luxury home.
Buy Low
The most experienced renovators have real estate experience, particularly in the geographical region in which they are looking to flip. For example, a Beverly Hills real estate agent who has worked out of the Los Angeles area will be able to procure better deals than an inexperienced buyer or a realtor from another region. By being knowledgeable in the real value of a region, one can make a sound investment and obtain a property well below market value.
Likewise, estimating the cost of repairs is key. Less experienced renovators end up breaking even; they often make the mistake of underestimating material and labor costs, and overestimating the selling price of the completed home. You want the listing price of the renovated home to be well above what you paid for it. Give yourself wide margins to pay off fees and taxes, and other costs along the way that may cut into your final listing price.
Sell High
Keep in mind that most aesthetic repairs don’t pay for themselves. If you think slapping a new coat of paint on a home will make you a house flipper you should think again. While a new coat of paint may add value to your home, the real profit margin in house flipping (especially in upscale homes) lies in structural repair. This means you’ll need the know-how of a fully licensed contractor. To turn a real profit, you’ll need to understand what pipes to replace, what walls to tear down and put up, and what architectural finishings are needed.
A fixer upper is a great project to undertake and even if you do it as a hobby, you’ll still likely want to turn a profit. A scenario that typically happens is a new buyer will purchase a home and flip it, without making a profit. They may make their money back, but not much more if they make a profit at all. In order to avoid this common mistake, we recommend gaining the knowledge needed in order to undertake such a task, or work with industry professionals that can help you buy low and sell high.
