Thinking about house flipping as an investment? You are not alone. The popularity of house flipping TV-shows makes the venture look easy and hugely profitable. How hard can it be? Isn’t it just buy cheap, fix it up, sell for more and repeat?
However, the reality is that house flipping is not easy at all. While house flipping can be profitable, it is not the new gold rush. The venture comes with considerable risks and demands hard work and dedication.
What is House Flipping?
House flipping refers to investing in real estate with the intention of carrying out a few changes on the property and reselling it shortly for a profit.
Usually, the property—which is often a home—is bought at a lower price probably because it requires renovations or is simply not appealing enough. You have to figure out how to improve the house while spending as little as possible to get a meaningful return on investment (ROI).
How to Negotiate a Lower Price on a House
House flipping comes with its risks, and there are tons of factors that can affect the venture. Things could go south with the snap of a finger. On the other hand, if you do things right, you could pocket huge returns.
Your success with house flipping starts at the negotiation stage. Here are some tips for negotiating a lower price for a house you want to buy:
1. Make Some Profit Out of Negotiations
You cannot afford to mess up the negotiations when buying a house. If you don’t negotiate a good deal, reselling the property to break even will be an uphill task. To improve your chances of getting a profit when you flip the house, negotiate to get it at the lowest price possible.
Let’s say the seller’s asking price is $100,000, but you expect to buy the property for $80,000. You may then inject $20,000 into repairs and list the house for $150,000. However, you are likely to sell for $130,000 or even less.
With house flipping ventures, you don’t want to ride on hope alone. Be realistic about what you could get from the project once it’s done, and make some profit from the negotiation. Since the $80,000 deal works for you, try fighting for $70,000 instead to secure an early $10,000 profit.
2. Research Similar Houses in the Area
While every house is unique in its own way, researching similar homes in your area will give you an idea of what you are getting into. From the average sale price of recent similar homes sold in your area, you can estimate the actual market value of the house and make meaningful counteroffers. Know how much you are willing to pay for the house.
When negotiating, knowledge is power. If you are not knowledgeable, you’ll be vulnerable. A seller can quickly tell when you don’t have enough information, and capitalize on this to squeeze more money out of you.
3. Always Start Way Below Your Goal Price
Sometimes, you will find a house that appears too good to be true. The house may meet all your expectations and even offer more. You may even be willing to go beyond your target price.
In such situations, practice self-control. Start negotiating way below your goal price, regardless of whether you believe you can recover your investment and still make a profit.
4. Avoid Being or Appearing to be Hasty
When negotiating the price of a house you want to buy, patience is a big deal. Being hasty makes you seem too interested. If you are indeed interested in buying a house, don’t let the seller know before closing the deal.
Also, practice silent negotiations at the table. When an offer is made, maintain silence for a bit, even if you already have a counteroffer. Make it look like you are thinking things over and weighing your options. Maintaining silence will give you a bit of an upper hand in the negotiations as the seller may get anxious and start thinking of making a better offer.
5. Keep in Touch with the Seller
Not all negotiations go the way you want. For example, you may not come to an understanding with the seller. Instead of getting yourself into a bad deal, it’s best to leave the negotiations.
However, keep in touch with the seller and make it easy for him or her to call you back after thinking things through. Sometimes, sellers can have unrealistic expectations. You want to be right there when the seller is finally ready to close the deal.
Negotiating is a huge part of real estate flipping and will determine whether you will get a positive return on investment when you sell your house. Take your time at the negotiations table to end up with a good deal.
Author Bio: Angela works with Unison to help homebuyers get the home they want without adding debt. Buying and owning a home doesn’t have to be a zero-sum game; with the right partners, everyone can win. You can check out Angela’s company and learn more about negotiating the home buying process in their Down Payment Guide for your first time home.