In 2019, a total of 245,864 homes were flipped in the United States. House flipping continues to be a popular investment strategy for Americans in the real estate industry today, thanks to the solid returns the venture promises.
Reality TV shows on home flipping have also helped boost the appeal of this one-of-a-kind investment opportunity.
But while TV shows make home flipping look easy, things in the real world can be a bit challenging, especially for beginners.
It’s the reason we prepared this comprehensive guide on flipping houses 101. Here, you’ll learn how to start flipping houses profitably.
What Is House Flipping?
House flipping describes a situation where a property investor purchases a home with the intention of fixing it up to resell it at a profit.
Typically, the property investor will buy the house, make appropriate repairs, upgrade the style and design of the property, and install new systems if necessary. The idea is to boost the value of the property so it can bring the biggest return on investment (ROI) upon selling.
What Makes House Flipping Such an Appealing Investment?
As a new investor in the real estate industry, you may be surprised by the number of options to choose from, with home flipping being one of them. What makes this investment approach worth trying?
It’s a Potentially Lucrative Investment
Whether you are considering flipping houses as a full-time venture or want to invest in it as a side-hustle, you still stand to make a substantial income.
In 2018, home flippers averaged a gross profit of $62,700 per flip. This was a staggering 39.9 percent ROI, after renovation and carrying expenses.
Even if you could flip just two or three homes per year as a part-time flipper, it’s easy to match or surpass your annual income.
Once you scale your home flipping business to more than five homes, you’d make enough to retire from your full-time job.
You Can Work from Home
One of the most attractive things about house flipping is that you don’t need to rent a storefront when getting into the business.
Chances are you’re going to be the only employee when first getting started in the industry, so you can easily manage your business from the comfort of your home.
Things are made easier by the fact that you don’t require any equipment or inventory to run your business. The houses you’re flipping are your inventory.
Minimal Startup Costs
Starting a small business can require a significant amount of money to purchase licenses, rent business space, redesign a storefront, install equipment, and buy inventory.
For instance, if you wanted to start a cafeteria, you’d need to build a storefront, purchase kitchen equipment, buy retail restaurant furniture and supplies, and hire staff.
Things are different with house flipping. Even with a small amount of money, there are lots of creative financing strategies to help you finance your first property.
You Don’t Need Special Licenses or Degrees
House flipping does not demand a special license or academic degree. However, you need an entrepreneurial mindset and spirit to thrive in the industry. It also helps to gain the relevant skills that set successful house flippers apart from the rest.
Having some real estate and construction experience sure does help. But even more important are the skills to delegate tasks and concentrate on the specific areas of your business you enjoy and are good at.
Check Out These Tips on How to Start Flipping Houses
Now that you’ve seen the clear benefits of home flipping, you’re probably wondering how to go about flipping your first property. Here’s a step-by-step guide.
Research Several Real Estate Markets
Real estate markets can differ significantly, as you’ll soon find out once you start looking for homes to flip. Generally, you want to stick to markets that you can comfortably afford.
For instance, if you plan to invest $20, 000 at the start of your flipping career, you want to avoid markets where homes start at $600,000. Even an investment property loan and financing can’t bridge that huge gap.
That’s why you need first to assess your finances and determine a suitable market.
Sure, investment financing will cover 80 percent or more of your purchase, but a 20 percent down payment on a $70, 000 property is very different from 20 percent down payment on a $600, 000 home.
Once you determine how much you’re working with, research markets where you can afford to flip your first property in.
Remember, you don’t have to invest in your hometown if prices there are outrageously high. Consider a real estate market an hour away if it suits you best.
Set Business Plan and a Budget
House flipping is a business like any other, so you need to have a business plan. The plan needn’t be fancy and overflow with difficult corporate lingo. However, it should include all the essential aspects of a business plan, including:
- A budget
- A timeline
- Project scope
Out of the money you have at hand, how much will you invest? How much will you hold in reserve? Can you comfortably cover renovation costs?
Determine what scope you’re comfortable with. For your first flip, it’s best to go for houses that require cosmetic updates, such as new flooring, new fixtures, new paint, and bathroom and kitchen updates.
Avoid houses with structural problems at all costs. Such renovations require permits, and you don’t want to deal with such issues during your first flip.
Line Up Financing Early Enough
Before making an offer for a home, it’s important that you have a lender willing to fund the deal. The good news is that there are many lenders willing to fund as much as 90 percent of a property’s purchase place and all of the renovation costs.
Shop around and compare at least three different lenders before settling on one.
Pay close attention to the fees. Generally, bridge loans for home flipping attract higher interest rates than conventional long-term loans, but that’s fine since you’ll only be making a few payments.
Network With Reputable Contractors
It’s also important to begin connecting with potential contractors even before you’ve bought the property you’re going to flip. As soon as your first property is under contract, start getting quotes from the contractors.
So which contractors should you be talking to? Chances are you’ll require the services of general contractors, roofers, electricians, painters, plumbers, HVAC professionals, and so on. A major part of the home flipping business is building a strong network with contractors, realtors, and home inspectors.
Find a Home to Flip
One of the most valuable skills you can have as a house flipper is to know how to spot good deals.
The best flippers not only buy below market value but also ensure the margins are wide enough to cover the many expenses involved and still leave them with a handsome profit.
So how do you find below-market house deals? There are several ways to go about it, including working with realtors. Check websites that offer information on residential investment and home flipping too.
Buy the Home
So, you’ve identified the ideal house and had the contract accepted. Now what? Time to close the deal.
If you are using an investment property lender, the good news is you’ll be able to get the money you need for the purchase much faster than conventional loans.
That means you should have the funds you need to finalize the purchase within a short time.
You’ll need to hire a home inspector too.
As we pointed out earlier, you want to make sure the house does not have structural issues before signing any papers. If the home doesn’t have any unpleasant surprises waiting for you, go on and seal the deal.
As soon as you’ve bought the house, it’s time to begin renovations. Remember that you’re paying interest, utilities, insurance, taxes, and other costs each month that goes by without you selling the property.
Successful home flipping is all about efficiency. That’s why it’s so important to choose the right contractors from the outset.
Sell the House
This is the last step of flipping a house. Now that you have renovated the property and it’s ready for sale, it’s time to find a competent realtor to help you find suitable buyers.
Your realtor will also help you with such aspects as pricing, staging, negotiations, and so on. Within no time, your new home should have a buyer.
Now You Know How to Flip Homes
House flipping is one of the most profitable investments you can find in the real estate industry. Now that you know how to start flipping houses, it’s time to venture into the sector and discover for yourself why so many Americans love it.
Would you like to read more great content on home flipping? Please keep visiting our blog.