The best first flip will give you a modest profit but, at the same time, eliminate most of the types of risks that can attack the inexperienced. I like to look at the risks in a question format and then separate them into categories, and then eliminate anything that fits into a bad category.
• Risk Category 1, If you obtain an education from books like this one, and do the work necessary, you can overcome the following risks.
What prices are similar houses selling for?
How long are similar houses on the market?
How much will known repairs cost?
How long will minor repairs take?
Will I meet any resistance from neighborhood architectural control committees, historic preservation societies, or similar groups?
What will my purchase, holding, and sale costs be?
• Risk Category 2, The risks on the next list are harder to control if you do not have experience.
How long will major repairs take?
How do I obtain the best price for repairs, without running the risk of shoddy, second-rate work?
• Risk Category 3, Finally, the following risks are the unforeseeable, surprise risks. If you have the financial staying power to overcome them, you will not get hurt. If you are a novice without substantial resources or the ability to borrow additional money, you could have a disaster.
If the project is a major one, will the market conditions change before my renovation is completed?
Will renovation uncover major defects that must be corrected at substantial additional expense?
Knowing these things, you want to find a piece of property that does not involve anything in the second two risk categories. Avoid major repairs, trying to chisel the last penny out of a subcontractor, lengthy projects, and homes that are very old, very dilapidated, or the recent objects of do-it-yourself major renovations. For example, my brother once bought a home with several new bedrooms, a bathroom, and a family room added by the prior owner. The wall studs, the 2x4s holding up the drywall and the ceiling, were placed 8 feet apart instead of the normal 16 inches. All the outlets and lights ran back to the same circuit breaker, which tripped constantly. The only way to fix that house was to start over.
I recommend tento twenty-year-old, single-story houses with brick veneer, built on a concrete slab. Look for three bedrooms and two bathrooms, so you do not have to add any extra rooms. This is a very marketable style and size of home. If you cannot sell it for some reason, you can always rent it out. Any structural problems, such as settling, have had a chance to reveal themselves. Major problems, such as a complete electrical or plumbing overhaul, or rotted wood at the windows, have usually not had time to develop. The house may need a new roof, but any reputable roofer can give you a firm quote after inspecting the rafters for rot.
Older houses may have environmental problems with asbestos insulation, asbestos tile floors, and lead-based paint. They are also more likely to have cloth-covered electrical wiring, or aluminum wiring, both of which are undesirable. An older home might have insufficient amperage service, requiring a complete electrical upgrade. Many older homes were covered in an insulating material that actually soaks up moisture like a sponge, resulting in mold, mildew, and odor problems.