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GHBA Remodelers Council 5 tips to avoid real house-flipping drama

October 7, 2018

With the recent wave of house-flipping reality shows, many people are convinced they too can profit like a TV star. Realistically, flipping and remodeling require a lot of effort, money and agility. Without the advantage of behind-the-scenes experts and network funding, these five overlooked tips can help you avoid excess risk during your next remodel.

1. Pull city and HOA code enforcements before closing. What looks like a great deal might actually be encumbered by expensive work orders. For example, imagine buying a house with a six-month-old roof. Unbeknownst to you, the HOA didn’t approve the color and it must be replaced — a total cost of $15,000. “Homework” isn’t entertaining enough to broadcast on TV, but it’s often the difference between a make or break investment. Research ahead of time to avoid investing in a property with expensive secrets.

2. Understand how your buyers will finance. The end buyer will rarely purchase with cash, so know Federal Housing Administration (FHA) and conventional loan requirements. In an effort to control fraudulent “flipping,” the FHA requires the current homeowner have a title for 90 days before resale. This is known as “title seasoning,” and it may increase your “hold time,” so be sure to budget for that. Also, conventional lenders may require two appraisals on a flip resale if the after-repair value exceeds 20 percent of the original investment price. Financing generally takes 30 to 60 days (45 days average) to process, so budget a four-month hold on any investment you intend to flip. TV producers make selling look effortless, but realistically, it requires careful planning. Schedule renovations thoughtfully and avoid excess hold time.

3. Always pay a little more for better insurance. Invest in builder’s insurance, but read the fine print. Many insurance agents woo you with low rates, but if someone gets hurt on site or if materials are stolen, you may not be covered if you bought the cheapest insurance. Most importantly, add Products Completed Insurance to your policy. It provides indefinite coverage for any claims a future owner could attribute to your remodel. When people sue, it’s always for something big, which you’ll never see on TV. Better insurance up front always pays off later.

4. Have a detailed process for hiring contractors. Contractor bids should always be itemized. Get an official inspection when you close and use that to guide the work you do to the house. Have three contractors offer bids to ensure you are getting a fair price on the remodel. Confirm the contractor provides worker’s compensation and their own liability policies in the event of an injury or damage. Beware of unresponsiveness or inattentiveness as this will indicate a pattern. Hiring oversight is somewhat dramatic on TV, but bank-breaking in reality. Save time, money and frustration by taking these precautions to ensure the contractor who starts the job is the same one who finishes it.

5. Document all communication and transactions with contractors. Always correspond (or confirm any verbal communication) via email to avoid discrepancies or contradictions. Upon work completion, all contractors and subcontractors should sign a Release of Mechanics Lien (sample forms are available from the Texas Construction Association) before you pay them. Cameras aren’t documenting your transactions, so cover your bases. Always pay subcontractors in person rather than paying through someone else and put it in writing to ensure you don’t get stuck with the same bill twice.

You may not have TV network producers, lawyers or funds to shield you against expensive mistakes while you have fun flipping houses, but with careful planning, smart investments, and thorough communication, your remodels can be easier and more profitable.

This article was provided by a member of the Remodelers Council of the Greater Houston Builders Association. The Remodelers Council is dedicated to promoting professionalism and public awareness of the remodeling profession through education, certification and service to the Houston community. For more information on this article, contact Lorraine Hart at lorraine@idealconsulting.net. To join the council or to find a professional remodeler in your area, please visit www.ghba.org.

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