By Melissa Dittmann Tracey
Think you have what it takes to flip a house or guide clients through the process? In Flipping Confidential: The Secrets of Renovating Property for Profit in Any Market (Wiley, 2007), Kirsten Kemp reveals how to avoid the common, costly mistakes of amateur flippers. Kemp, who you may know as host of TLC’s “Property Ladder,” talks from experience as she lays the groundwork for a high-profit flip — how to choose the best property, decide what improvements to make, set the price, and stage for maximum impact.
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FROM THE BOOK: 5 MUSTS TO FLIPPING
Kirsten Kemp has experienced six-figure profits and six-figure losses in her years of flipping houses. She shares some valuable lessons she’s learned along the way, with the goal of helping you avoid making a “flip-flop.”
1. Find stagnant listings. Track down undervalued properties — homes that have languished on the market with no activity — and then make a lowball offer. Look for a property with problems that would repel other buyers, but aren’t too major. Before you snatch up that eye-sore, though, get an inspection and estimates for work you’ll want to do. That will give you a better picture of what you’re getting yourself into.
2. Enhance, don’t rebuild. Put down that sledgehammer. Your goal isn’t to tear everything down. Think simple — repainting, cleaning, and getting rid of that shag carpeting. Restain the kitchen cabinets instead of buying new. Add custom window treatments or crown molding instead of replacing all the windows. For larger projects, look for changes that will bring the best return on your money, such as adding a fourth bedroom or turning an unfinished attic into a den.
3. Don’t get too attached. Getting emotionally tied to a house makes it hard to stick to a tight budget, which is essential for a profitable flip. Kemp tells how she lost a major chunk of change on a flip she bought for just under a million dollars by spending $900,000 on personalized improvements she would want in her own dream home. The property went on the market for $2.5 million, just two days before the Sept. 11, 2001, terrorist attacks slowed the market. She ended up reducing the price to $1.8 million — $700,000 less than she had planned.
4. Keep close track of your budget. Before you start working on the home, get detailed estimates from all contractors and suppliers. Kemp includes a sample budget in her book, which takes into account the cost of home inspections, appraisals, staging, and closing costs. As for your renovation budget, Kemp uses the following formula: Subtract your purchase price from your capital gains tax, carrying costs for the construction period, and real estate commissions. That number then equals a combination of your profit and renovation costs. How much you spend is how much less you’ll make. Don’t forget to buffer your budget for unforeseen delays.
5. Price to sell. The key to a quick sale: Underprice it. List the house for about 2 percent less than the closest comps in the area, Kemp says. Don’t price it high just because you overspent on renovations or became emotionally attached, or the house will likely sit on the market. The longer you hold onto the house, the more your carrying costs will bite into your profit.
“I realized I was a bona fide flipper when I got more excited about seeing dumps. Every ad that announced ‘handyman special’ or ‘lots of potential’ had me salivating. Eventually I got to the point where I couldn’t resist sneaking a peek inside any house on the market, from the condemned mold factory to the most grandiose mansion. Both instilled in me inspiration and delight. Train your eyes to see, not what is there when you’re touring a home, but what could be there. The reason you are going to flip this house is not because you have a mad urge to wield a sledgehammer, but because there’s something there you can improve.”
ABOUT THE AUTHOR
Kemp first broke into flipping properties after her father died and left her an old, rundown house that needed much TLC. The experience unleashed her inner designer and opened the door for a new career. Kemp turned a $30,000 profit on the sale of her father’s house, which she immediately invested in a condo, which she flipped and then made an $80,000 profit. That was just the beginning. The veteran REALTOR® and former actress now owns her own design company and hosts The Learning Channel’s TV show “Property Ladder.”
Don’t forget to check back on June 4 to listen to an exclusive podcast with Kemp as she responds to some of your previously submitted questions.