Flipping houses is all about finding damaged properties to renovate and sell for a profit, right?
Actually, you might be surprised to learn there’s a bit more involved than that, if you want to become a successful real estate investor.
The truth is, while every experienced “flipper” knows to anticipate some degree of property damage, the highest-earning real estate investors are the ones who understand the difference between a property with untapped potential and the dreaded “money pits.”
As you might have guessed by now, there are a handful of telltale signs to watch out for when you’re searching for homes to purchase so you can protect your investment and avoid losing money on an unprofitable flip.
4 Questions to Always Ask About a Property If You Want to Avoid Buying a Money Pit
1. Has the foundation been compromised over time?
The first thing to look for in a potential investment property is a home that’s structurally sound— all other property damage pales in comparison to a crumbling foundation. Rebuilding a home from the ground up isn’t just expensive; it’s an incredibly lengthy process that can delay the turnaround time for your flip indefinitely.
With that in mind, checking the foundation alone is reason enough to hire a home inspector before closing on a property.
Remember, including contingencies with an offer is customary, and most sellers will expect you to do so, but after you’ve purchased a property, there’s no going back, and a home with foundational issues is more than likely a money pit.
2. Are there building code violations, and if so, how much will it cost to repair them?
Generally speaking, the older a home is, the less likely it is to be compliant with the latest safety codes. Again, a thorough home inspection by a licensed professional is essential for understanding how much work the property requires.
Most home inspectors will provide a written list of items they’ve identified as potential safety hazards. Once your inspection has been completed, use this list to estimate roughly how much it will cost to bring the residence up to today’s building requirements.
Factoring in any additional cosmetic upgrades you intend to make, you should then be able to come up with a ballpark figure for the total renovation costs.
3. Does the home have water damage, and if so, what caused it?
While your home inspector may identify signs of water damage, determining the actual cause may initially prove challenging. If you do decide to purchase a home that shows signs of leaks or flooding, it’s important to understand that any correlating repairs must take priority— in terms of both timing and budget— over nearly everything else.
Because if a property does in fact show signs of water damage and/ or mold, learning what created the problem is absolutely crucial for preventing future leaks and, obviously, minimizing your total costs.
So, if you suspect there may be a plumbing leak, you’ll want a licensed professional to come look at the property as soon as possible to assess the damage and provide an estimate for repairs.
Alternatively, if the home has an outdoor drainage problem, this will need to be corrected early on in the renovation as well in order to ensure no additional flooding can delay your rehab if extreme weather hits.
4. How much are comparable homes in the area worth?
Of course, when trying to figure out whether a home is a potential money pit or not, the total estimated renovation costs must be considered in conjunction with the price you’re expecting to sell the home for.
There are plenty of excellent resources online (i.e., Zillow, Redfin, and Realtor.com) to begin your research on comparable homes’ selling prices. But with that said, it’s always a good idea to consult with a local Realtor as well for further insight into the latest market activity and shifts in demand.
Find Your Next Great Flip Today with CastleRock
With the first days of spring just a few months away, now is the perfect time of year to start searching for your next investment property.
Be sure to browse CastleRock’s online inventory of houses for sale throughout the country, and get in touch with our friendly, knowledgeable staff if you’d like to learn more about our special discounts for cash buyers.