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Shows on house flipping and renovation are very popular right now, and it portrays this industry as a big moneymaker. It seems that everyone wants to jump on the house flipping bandwagon. But is it really the kind of moneymaker that it seems to be on TV? Before you decide to “flip this house,” consider the following questions if you want to actually make a profit:

Is this house in a good location for resale or rental? Doing an up scale renovation in a low-income area might be good for the home on a cosmetic scale, but will it “fit” the rest of the neighborhood? Many home flippers will be on the lookout for the ugliest home in a good area. You need to be cautious and decide what renovations are the most important and then which ones can be skipped. For the home to be a moneymaker, you don’t want to waste time on costly renovations that might not be worth it in the long run.

How handy are you? Obviously, there are some jobs that are better left to trained professionals. But if you’re willing to invest some sweat equity into your flip, you’ll definitely reduce costs. Even things like painting and landscaping – which seem like minor jobs – can have high costs when you factor in materials and labor. Also, if you know people who are able to lend their talents to help you complete some of the repairs, then there will be less money out of the budget going to contractors and subcontractors.

Are you willing to be patient? Patience is key when flipping a home, as you wait on contractors and jobs to be done, you wait on things to be installed, or papers to be signed. Then you wait to find the right person to call the place home. The fluctuating real estate market can turn on a dime it seems, which can leave home buyers and sellers in for a roller coaster ride. Once your projects are done and the for sale/for rent sign is in the yard – you wait. And sometimes you wait and wait some more. Do you have what it takes (and the extra cash flow if you don’t find a buyer right away) to be patient if things don’t happen quickly?

Be prepared to learn as you go. Even the most experienced home flipper will tell you that each flip has presented its own unique challenges and problems. Just when they think they have seen it all, something new will pop up. If you can keep the end result in mind, the problems and delays, even the big ones, will seem so insignificant when the work is done and the house is sold, and most importantly, you will have learned something new.

House flipping definitely is not for everyone, and not for the faint of heart. But if you’re willing to take some risks, get your hands dirty, and put in a lot of hard work – it can be a legitimate moneymaker.

Just as real estate market deterioration has been known to lead the economy into a recession, it also has always been a spring board to recovery. Considering the thousands of products and services associated with residential and commercial construction, it is no surprise that our prosperity is so dependent on this one segment of the economy. Every adjustment in the real estate market creates a new economic dynamic and a new financial opportunity. Today’s low interest rates, a prevailing buyers market and a vigorous rental market combine to provide a window of opportunity for real estate investors in the rental property segment of the real estate market.

A preponderance of foreclosures, short sales and desperate sellers in general present an abundant supply of suitable rental properties in most marketplaces. The complexity for the investor is selecting the “right” property.

Location
It has been said by seasoned investors that the three key elements in buying a real estate investment are “location, location, location”. An excellent location could be defined as having close proximity to public transportation, shopping, employment centers, and other public services. The objective of the landlord is to easily rent the property and keep it rented. A great location attracts a much higher number of potential tenants and insures the potential of future appreciation in value.

Age
A house built in 1906 may have character and as a result command a little higher rent but everything deteriorates over time and the potential for severe maintenance issues is high. The exception is when it can be documented that plumbing, electrical and exterior materials have been recently updated. This is a factor that should be seriously considered and employment of a qualified home inspector should be a must and the purchase contract should be made contingent upon buyer acceptance of the inspectors report. This can be a stumbling block with foreclosures and short sales because the lending institutions representing the property will rarely accept or approve contracts with home inspection contingencies.

Size
Smaller properties make ideal rental properties because they are easier to rent and to maintain. For example; it is much easier to rent a property for $1000 To $1500 per month than one for $2500 To $3000. The cost to replace a roof on a 2000 square foot house is obviously less than one on a 4000 square foot house. One exception may be an upscale condominium that exterior maintenance is covered by the association. There are certainly exceptions to every aspect of property evaluation. Those with the best instincts make the best decisions.

Condition
Real estate that is placed on the market in shabby condition is likely to have a history of poor maintenance. “Handyman specials” frequently turn out to be not so special. If there are obvious repair items there may be deep seated problems that are not so obvious. There is a high probability that the seller could not afford to maintain the property for years in the past. In weighing the purchase price plus the cost to repair verses the acquisition cost there should always be a cost variation factor built into the equation. Again, a qualified home inspector is a must. A home that has obviously been well maintained may not be purchased at a below market price but it is much safer as an investment and less likely to cause the landlord aggravation.

Talk to the neighbors
Neighbors frequently provide a considerable amount of information about the community relative to making a decision to purchase. If drugs are being sold on the corner or the next door neighbor is a sex offender, the neighbors are likely to disclose this information and the investor may come to the conclusion that this is not the ideal investment property. The neighbors will usually be aware of any development plans by municipalities that could adversely affect the property values in the community. The municipality will be a more reliable source for this information. Although there are normally safeguards against such events, it is a good idea for the buyer to make sure that the purchase contract provides protection against easements or property line delineation issues.

The financial decision
The final step in the evaluation process is the financial equation. Will the rental property create a positive cash flow? Even if the rental value indicates that initially there will be a small negative cash flow the property may still be a outstanding investment opportunity. Rent increases may offset the negative cash flow in the relatively near future. Realtor and property managers can provide sufficient data on comparable rental properties to establish the subject property’s approximate rental value.

The mortgage is the key component to the final evaluation. The lender will require at least 20% down payment and the best execution is with 25% down payment. The interest rate on a 30 year fixed rate mortgage for an investment property will be at least 1% higher than that of an owner occupied home. The mortgage payment will include one month of the annual real estate tax and the premium for one month of the annual homeowner insurance. The real estate tax is public record and is usually included in the property listing. It is the only variable in the mortgage payment over the 30 year amortization.

Real estate is an appreciating asset regardless of market downturns. Inflation and a growing population see to that. The prospect of a tenant making the mortgage payment and reducing the mortgage balance while the property is appreciating is an overwhelming endorsement of the rental property investment. Managing rental properties can be exasperating at times but the eventual up side is a source of income from an asset that also has substantial equity through mortgage balance reduction and market appreciation.

When buying real estate, it’s important to remember that all purchases of real estate are essentially investment properties. What will matter most when buying real estate for investment is what the objectives are of the purchaser. Rental properties, specifically, generate regular income, and, in this market, can be ideal right now-if the investor takes time to consider these four possibilities:

#1 – Choose the Right Location
The ideal location for rental properties is where the population is dense. Look for areas near colleges and universities, accessible to public transportation options, and close to activities such as shopping centers, cultural events, and the like. Renters with children typically wish to be in areas that have good schools, and safe neighborhoods, so choose an area that is close to the best schools, private schools, or have a great deal of activity and population density.

#2 – Sound Financial Planning
In order to take advantage of the buyer’s market, ensure that there is enough capital to handle typical investing risks. There’s no need to stop at working with lenders. Lenders can be very helpful with understanding financial goals, but they’re just for starters. Discussing options with a financial planner can help increase capital to pay for many potential obstacles. It is also important to try to have at least six months worth of mortgage payments on hand to cover repairs, maintenance, or transitional periods where the house is between renters. Buying real estate for investment is just the beginning; knowing the investment hazards and being prepared to avoid them will help make the most out of any investiture.

#3 – Consider Property Management
A property management firm can assist in the daily rental issues that occur, and having a maintenance team on board can ensure issues are taken care of before they become problems. Moreover, consider expanding the property management team to include an attorney to handle legal issues, and an accountant to assist with finances and taxes. In this case, more really is better, as a good team can work ahead to foresee potential issues that could become headaches if not handled immediately.

#4 – Choose Experienced Partners
When just starting out in investment properties, it’s a good idea to partner up with an experienced real estate agent, who knows about buying real estate specifically for rental and investment properties. A good broker will assist their clients with sound recommendations and advice, because they want repeat investors. They look to seek relationships with investors over the life of the investment, and are always able to help search for growth opportunities.

Now is a great time for buying real estate to turn into an investment property, particularly rental properties. This is specifically true for rental investments-with good tenants there is the promise of steady income and gains. By keeping these four tips in mind, foreseeable pitfalls can be avoided. With market prices being as low as they are right now, getting in on an investment property is ideal.