With all the new reality tv shows about flipping houses, there can be an unrealistic or distorted view of what really goes into flipping a house. Some shows do a great job of showing how an ugly house can be transformed into a beautiful home while other shows follow the antics of the rehabbers as they stumble their way through a construction project they truly know little to nothing about doing. As a viewer, and someone interested in real estate investing and flipping houses, these shows can actually do damage to your education by misinforming you on how to go about rehabbing and flipping houses.
Here are 5 things to beware of:
1: Know The Repair Process
First is to learn how to properly rehab a home, what the process is and what should and shouldn’t be done. This includes how to do initial inspections yourself as well as how to hire an inspector to double check what you are seeing and what you are not seeing. Good licensed contractors can catch a vast majority of things as well. This would include a licensed electrician, licensed roofer, licensed AC technician, licensed plumber and general licensed building contractor. Each one brings a specialized set of eyes and experience.
Having a complete and thorough understanding of what goes into the repair process is vital. What you see on reality tv most of the time does not go into details at all about what building code requirements are, or the proper procedures for doing many repairs.
On the reality tv shows, there are constantly moments of “oops, look what we found, that’s going to increase our costs”. There is little to no excuse for most issues not being known ahead of time. A good thorough home inspection will catch a lot of things. But then again, on some reality tv shows, the issues may even be known ahead of time but left to be a “surprise” in order to make the show have more drama right before they cut to a commercial.
2: Hire A Professional
That brings us to #2 which is to hire a professional. Some reality tv shows on flipping houses make it look like rehabbing a house is fun and games. The stars of the show may even be shown doing some of the repairs themselves but have you ever noticed how clean they are as they are doing demo? This is usually because the shot a few good minutes of work, then step back to let workers take over.
Your job in real estate investing is to be finding deals and closing transactions. Rehab work is for contractors and laborers who make less money per hour.
As a beginner, you will want to get with your local investor association to see if you can locate some contractors who do complete turnkey rehabs for investors. A contractor who routinely does turnkey rehabs for investors will usually be competitive in pricing and be able to guide and teach you through the process of rehabbing the house you are flipping. Remember too, as a beginner, you most likely will make costly mistakes, so the cost of hiring a professional can be a great savings as well as a great learning experience if done right.
3: Know The Numbers
As part of hiring a professional, they will also be able to help you know your numbers.
Reality Tv shows tend to give basic numbers of X-amount for the kitchen and x-amount for the bath remodel. Numbers when doing a rehab and flipping houses are not so simple. You need to have a grasp of not only what it costs to rehab a kitchen or bath, but also all the little things in the middle that add up fast like for example, dumpsters, demo costs, light fixtures, door knobs, ac replacement, permit fees, holding costs for any loan you have, closing costs, realtor fees and so on. You must know ever cost so you can factor every cost into your numbers.
4: Know What You Will Make
Knowing what you will make also comes down to knowing your numbers. And what should you make? Some investors will flip a $150K house and shoot for making $15k-$20K as an example which comes out to around 10+% while other investors would shoot for 20+% of the after repaired value. Other higher value deals could have a higher or lower percentage.
If you don’t know your numbers going to the deal and fully understand the costs involved, you could easily find yourself not making money and even losing money.
Beware too that on reality tv shows, at the end of some shows they say what they “should make” once the house closes. The fact is, if you haven’t closed and got the check in your hand AND cased it, you are just speculating. What happens if it doesn’t sell for the price you want? What if it takes much longer to sell and you have to pay more in holding costs for any loan you have. Or how about the new buyer gets a home inspection and finds the house still has issues because it wasn’t rehabbed correctly and now additional repairs have to be done?
Just be aware that some shows give numbers as though they made x-amount on the deal when public records later show the house never sold for what they said on the show. A reality tv show on flipping houses in the Las Vegas area was specifically caught in this situation.
5: Good Reality TV Shows Exist
When it comes to what makes a “good” reality tv show, I am talking about a show you can learn from and get the best realistic correct view of what it takes to flip houses.
If you really want to see how to properly remodel a house and what to watch out for, the show “Holmes On Homes” (2003-2008) and “Holmes Makes It Right” (2012-) are my favorites. As a licensed building contractor myself, I appreciate when someone looks for what has been done wrong, identifies it, then corrects the issues the right way. No patching, covering over or hiding issues. Mike Holmes knows his stuff and shows you the right way to tackle rehabbing houses.
Another favorite of mine is “Fixer Upper” with Chip and Joanna Gaines. While the show only lightly goes into how rehabbing and repairs are done and the estimates they give very basic details on cost in my opinion, the final results are almost always fantastic. The key thing you can learn from this show is design ideas and “staging” of the home with furnishings. However, keep in mind that not all houses get the same type of rehab when flipping houses. Some middle class neighborhoods would not warrant the all-out beautiful rehabs. There is a balance on the area and the final rehab results and everything comes down to the numbers in the end so knowing the numbers is extremely important when flipping houses.