Much like the stock market, real estate is a business of great vicissitudes. The prices of properties can shoot up, plummet down, stay unchanged, or even spiral into nothing. Most people take great advantage of this trend to make money with house flipping.

This enables them to make money in any market condition whether in an economic recession or otherwise. You can make money with house flipping if you purchase your house at rates lower than the standard ones in the market.

• House Flipping and Market Study
• Understanding the Basics: make Money with House Flipping
• How to Avoid Mistakes and Make Money with House Flipping
• Can You Make Money Flipping Houses?
• What is The 70% Rule in House Flipping?
• How Much Money Does The Average House Flipper Make?
• Is House Flipping a Good Career?
• Is it Better to Flip or Rent?
• Can You Flip a House With 50k?
• How Much do You Have to Put Down to Flip a House?
• 5 Ways to Flip Houses With no Money
• How to Flip Houses For Beginners
• House Flipping Business Plan
• How to Start a House Flipping Business
• How Much Can You Make Flipping Houses?
• How to Flip a House For The First Time
• Average Net Profit For Flipping a House
• How Much Does it Cost to Flip a House?

House Flipping and Market Study

This means that you will have to lower your investment exponentially. Having an immediate outflow of cash depending upon which section of the real estate business you invest in, can depend on how you make money with house flipping.

Read Also: Real Estate App Development Company

When real estate prices are on the rise you need to ensure that your total costs do not exceed at least 80% of the resale value tentatively estimated. When it comes to investing in house flipping with steady house rates, it is ideal to invest up to 75% of the resale costs. The value goes down to up to 65% when involved in a decreasing real estate rate market.

Understanding the Basics: make Money with House Flipping

If you are looking to make money with house flipping, you need to be on top of the real estate and emerging market trends and have good knowledge of the premier builders such as McArthur Homes in your area. House flipping is one of the most exciting albeit risky ventures to get into.

However, if one begins to get a hang of it, it can turn out to be a constant source of income and can soon get you to the millionaire status. To the uninitiated, the business overall might seem confusing. Keeping those people in mind here are some helpful steps to help them make money with house flipping.

• Revenue Earning Assets Only: The first thing to bear in mind is the understanding that only revenue earning assets have the ability to amass wealth. These assets are namely landed property, apartments, intellectual property, commercial businesses, rented establishments and owned properties. It does not matter whether you own some or all of them. The fact of the matter is that using rented or pre-owned properties is actually economically benefitting the owner alone. You can only expect some asset to bear fruit only if it has the ability to generate income for you. Therefore, it is your primary duty to amass these assets first.
• Prepare the Infrastructure: The next thing to focus on is readying the infrastructure. You need to be in constant access to investors. It does not matter if you are investing your hard-earned money into this. Having your own place to live along with the basic infrastructure to conduct this online is what you truly need. The next step is assessing your credit score. You cannot hope to make money with house flipping if you have bad credit. In case your credit score is low, you can invest in financial services to help repair it. Whenever you purchase something off credit, remember to pay it off as quickly as you can. This will let investors and real estate owners view your credit as someone with ample responsibility. Never overspend on your credit. Remember to always keep a 30% balance.
• Own, Don’t Rent: You need to be able to get it right regarding transition from renting your apartment to owning it in the first place. With enough money to rent an apartment, chances are that if you work harder, you can find enough funds to buy a place of your own. This automatically reflects as good credit in your credentials. The prime factor here is ownership. With this in mind, you can successfully contact local realtor into showing you more properties.
• Get What You Find: With the kind of assets already owned, you cannot hope to create a fuss over what you get. There are good chances of buying a foreclosed home from the owner or probably taking it up on lease or even carry the mortgage forward. If those are the kinds of realtors that you are coming across, try to have the home seller pay at least 25% of the equity as a second mortgage. Then you pick up the first mortgage from the bank. If this seems too troublesome for you then you can choose to secure a 5% down payment on mortgage insurance and take the rest off the bank as loan. The ideal realtor will be able to bring in even more option to the table. The next thing to consider is getting an efficient deal. There are a number of sellers who are financially hard-pressed to sell their properties at discounts. This is the window of opportunity that you need to look out for.
• Relist As Soon As You Can: Once having made the down payment, you can immediately put your newly acquired house for sale at up to 25% of the selling price. This is how you can make money with house flipping. The key factor lies in finding properties which can be upscale and sold for higher prices, without biting into your prospective buyer’s budget. To make it look appealing, it is imperative to have to spend on maintenance costs. Try not to spend too much on the decorations. Remember to avoid major renovations as they can end up being a liability on your credit. Calculate your costs wisely and relist your property within one and a half months to cover more than 10% of costs. The amount you earned after flipping that house can become the moolah for your next purchase.
• Find Another House: The next rung in the ladder is looking for a better home to flip. You need to look for options that can be easily mortgaged to you. However, if the seller is willing to continue paying the mortgage, you can end up saving a lot of money. Having made that purchase, you need only to repeat the decoration process and relist that property quickly to at least procure 10% of your initial costs. With time, you will be able to make money with house flipping and earn up to $100000. A lot of your income depends upon the house that you choose to flip. Since the real estate industry is heavily dependent on families with kids, it is essential to invest in medium sized houses with three bedrooms and two baths at least. As you make money with house flipping over subsequent years, you will amass enough money to rope in bigger fish using the same process.
• Going for the Bigger Fish: The next step is purchasing properties with very little down payment out of your amassed income. With your 10% down strategy intact, you can successfully ask the seller to carry a second mortgage. Eventually you will be able to keep your money and leverage the exact amount worth in properties and commercial ventures. This will let you have up to $15000 every month with additional helpings of up to $12000 in equity earnings from those properties.

                 
How to Avoid Mistakes and Make Money with House Flipping

You can easily earn huge profits and make money with house flipping, but there are some mistakes which you need to avoid making. In the flurry of profiteering, a number of experienced real-estate magnates overlook the basic rules and end up losing face.

1. Financial Backing is Important: You need to understand the importance of investing in real estate. It is a risky proposition that can fall through completely, if you do not have a sound financial backing funding your endeavors. Property acquisition costs from legitimate agents are the primary hurdle that you need to overcome. With high interest rates and next-to-none down financing claims, you need to be able to have enough to make the purchase carry the mortgage and even pay the interest if need be. Numerous property holding costs such as taxes, utilities and renovation charges need to be considered as well. All costs involved in fixing up the house and putting it on for resale have to be factored in as well. Even if you manage to have surplus, you need to avoid capital gains. These taxes can slowly erode your profit margin down to a minimum.

2. Invest Enough Time: If you are looking to make money with house flipping then you will need plenty of time and patience. Searching for the right house at the right prices can take months at a time. Once all the paperwork finalizing your purchase is done, you will need to spend additional time in setting up the place for relisting.

Such timelines differ depending on the type of home purchased. Well-set or newly constructed homes hardly need any investment, whereas old and foreclosed homes need a great deal of work to be done. You have to run regular checks to ensure that the property is up to the health and construction codes and eventually spend time there to bring it up to standards.

Even if you do not enlist your property with realtors, the cost of commuting while personally showing off your purchase might also need ample time.

3. House Flipping Skills are Mandatory: You cannot hope to make money with house flipping, if you do not have the basic house-building/repairing skills. Such skills make it easier for realtors, carpenters and other skilled professionals to make money with house flipping. The basic level of expertise is to be able to find the best-suited house and fix it before relisting.

Investing in sweat equity is the real source of income when you are looking to make money with house flipping. If you enjoy pottering about the house, laying carpets, fixing cracks, hanging drywall, installing a kitchen sink, fixing pipes, laying the roof, and hanging drywall, you can do wonders in this line of work. Alternatively, you can hire professionals to take care of these bits, but that will keep you away from the savings that you can make.

4. Eye for Good Properties: If you have the right kind of property at hand, you have already won half the battle. A number of realtors often lose money and face on being able to identify the right property in the right place at the right time. The skills also extend to when you are selling the property.

For example, you cannot hope to purchase a property for $50,000 in a neighborhood with $100000 apartments and then sell it for double the price. People in real estate are far too intelligent to be fooled by such tricks. Even with deals too good to be true, you need to scale down your decisions based on what renovations to undergo and which to skip.

Then there are laws that you need to watch out for and avoid at the same time. Most of all, the prime knowledge of when to scale back from your losses and abandon the property will help you sell through shark-infested waters and make money with house flipping.

5. Patience is Key: With a venture as time-consuming as this, having no patience can very well become your Achilles heel. The only difference between the abject professionals of the field and the novice workers are their degree of patience. Novice workers are known to rush on and hire the first contractors to complete work, they cannot hope to accomplish.

Most of the professionals do all the work themselves and take their time in assessing a given property. Unlike novices, the professionals do not invest in realtor services to sell these properties, but conduct sales by owners to maximize their gains.

Professionals understand the unpredictable nature of the market and make plans accordingly. They know that their hard work might have narrow profit margins. New workers on the other hand, expect a great deal without even putting half the required efforts.

Can You Make Money Flipping Houses?

Flipping houses may sound simple, but it’s not as easy as it looks. Let’s be real: A house flip can either be a dream or a disaster. Done the right way, a house flip can be a great investment. In a short amount of time, you can make smart renovations and sell the house for much more than you paid for it.

But a house flip can just as easily go the opposite direction if it’s done the wrong way. We’ve all heard house-flipping horror stories—the ones where what seemed like a good deal turned into a house with a shaky foundation and a leaking roof. At the end of the day, a house flip may not make you money. It actually could cost you thousands.

If you decide to flip a house, you certainly don’t want to lose money. You want to make a wise investment and reap the rewards.

In 2019, flipped homes sold for a median price of nearly $218,000 with a gross profit of almost $63,000.

Keep in mind that the gross profit doesn’t include the amount spent on repairs and renovations. But if you’re able to flip with cash and stay in your budget for renovations, it’s completely possible to make a great return on your investment.

The key to flipping a house successfully is to do it with cash, make a smart investment in the type of house you purchase, choose renovations in your budget, and sell it quickly.

What is The 70% Rule in House Flipping?

The 70 percent rule is a way to determine what price to pay for a fix and flip to make money. The 70 percent rule can be a very helpful guide.

The 70 percent rule states that an investor should pay 70 percent of the ARV of a property minus the repairs needed. The ARV is the after repaired value and is what a home is worth after it is fully repaired.

If a home’s ARV is $150,000 and it needs $25,000 in repairs, then the 70 percent rule states an investor should pay $80,000 for the home.  $150,000 x 70% = 105,000 – $25,000 = $80,000. Buying a house for $80,000 that will be worth $150,000 may seem like an awesome deal, but you have to remember all the costs involved in a fix and flip.

The 70 percent rule can be a decent guideline in certain markets, but it does not work everywhere. If you are struggling to find deals that meet this rule it could because you don’t need to meet this rule in order to make a deal work. The 70 percent rule could also be way too much to pay for houses if you are in a market with cheaper real estate.

How Much Money Does The Average House Flipper Make?

The amount of money you can make flipping houses largely depends on how many houses you can flip, not in finding a single house that will net you a huge profit. One of the most consistent house flipping tips you’ll see is to search for houses where you can make a clear 10 percent to 15 percent profit on the sale after paying for repairs, realtor fees, title fees, and financing.

While those numbers can change depending on the price range that you’re working in, most experienced flippers hope to make around $25,000 per flip, although they always hope for more. What they won’t do is buy into a house that will only give them a profit of $10,000, which could be eaten up if there are unexpected expenses during the repair process.

There are two major areas where new house flippers tend to lose money: unexpected repairs and holding the house for too long. An experienced flipper will have a complete flip done within 90 days, freeing up their money for the next investment. If it takes longer than 90 days to get the house sold, you’re likely losing money each day.

Also, you should always estimate your repair costs on the high side by adding a 15 percent to 20 percent buffer to your expected expenses. With the right system in place, it is possible to flip a dozen houses or more each year and make gross profits in the six figures.

Is House Flipping a Good Career?

Property flipping, or house-flipping as some people call it, can be a lucrative way to earn money in real estate—if it’s done right. Since it requires a sizable investment of your own money, becoming a property flipper can also be a risk that doesn’t always reap rewards.

Many people get into real estate, via the house flipping route, to earn a part-time income or as a way to experiment with a real estate career while discovering which real estate career path is the best for their lifestyle.

Flipping houses can be a lucrative career choice if you know where to start and are not afraid of putting in some hard work. Despite facing less-than-ideal market conditions, real estate has always been a wealth-building asset class and will continue to be so long after the COVID-19 crisis has come to an end.

If you start your real estate investing business in challenging circumstances, working with a partner under the umbrella of a legal business structure can help you limit your liability.

As the economy struggles to regain stability, it will be up to you to look for house flip opportunities from multiple sources, including paying attention to foreclosure auctions in your state.

Be sure to include the latest real estate market performance in your house flipping business plan, and remember the factors that made for good investment locations in the past will make for good ones again in the future.

Is it Better to Flip or Rent?

Flipping vs. renting is always a tough decision. Both are viable ways to earn income as a real estate investor and have their own advantages and disadvantages. So which is a better way to invest — flipping or buying rentals?

Let’s take a look at the differences between the investment strategies as well as the pros and cons of each to help you determine which may be a better investment for you.

Flipping houses vs. buying rentals — the big difference

The biggest difference between flipping housings and buying rentals is that flipping requires active management, while rentals earn you passive income from monthly rent.

You don’t have to do all the work yourself to flip a house, but it requires active management, oversight, and participation. Flipping houses is more like running a business than being an investor. Your income is limited to the number of flips you do. You only make money when you find, fund, and flip a house. This is typically paid as a one-time lump sum. 

When you buy a rental property, you do the work once and receive monthly cash flow in the form of rent checks every month. Rental income is ongoing and doesn’t stop until the property becomes vacant or you sell it.

The pros of flipping houses

Flipping houses has significant advantages. The primary benefits are that you can make lots of money at one time and it’s a short-term investment.

You can make large amounts of money quickly

Flipping properties can produce a large income in a short amount of time. Most flips can be completed in three to six months and produce tens of thousands of dollars in profit if done properly. The faster your money is returned to you, the higher the return on investment and the more deals you can complete.

If you complete five flips per year making $20,000 per flip, you could earn $100,000. Making the same amount of money with rental real estate would be extremely difficult in the same amount of time.

It’s a short-term investment

While you still have your fair share of management dealing with contractors and real estate agents, flipping a house is a short-term investment. In just a few months, the project is completed and you can move onto to the next venture — hopefully with some money in your pocket. You don’t have to deal with long-term management of the property, like collecting rent checks and dealing with tenants (or evictions).

The cons of flipping houses

Of course, there are downsides to flipping houses, too. The main disadvantages include paying more taxes than you would on rentals, having your success dictated by the market’s whims, and unexpected expenses cutting into your profits.

Higher taxes

When a property is sold for more than it was purchased for, it’s subject to capital gains tax. The capital gains tax rate varies based on the time the investment was held.

Gain from flipping houses is taxed as ordinary income, which is often a higher tax rate than rental income would be.

Rental properties, as long as they’re held for more than a year, are taxed at long-term capital gains rates, which can be 0%, 15%, or 20%.

At the mercy of the market

Investments that rely on appreciation aren’t investments — they’re speculations. Flipping houses assumes the improvements will increase the property value enough to make a profit. And that relies on current or improving market conditions.

In a growing or expanding market, this is possible. But, if the real estate markets crash, the assumed value can dramatically decrease, putting house flippers in a risky position.

Unexpected expenses and repairs can hurt your bottom line

It’s especially important for new investors to prepare for unexpected expenses and repairs in their first few flips. Contractors can leave without completing their work, do a poor job, or take longer than expected. Expensive unexpected repairs could arise as the project is underway.

This can cause higher-than-expected costs, which hurts your final return.

The pros of investing in rental properties

Buying rental properties has some big benefits — namely, that you get to take advantage of high cash flow, tax benefits, property appreciation, and recession-resistance.

Cash flow

One of the largest benefits of buying rental property is cash flow. Rentals are typically a long-term investment that can provide substantial passive income to the owner over time. Cash flow, especially creating passive income, is a significant contributor to building wealth and financial independence.

You can slowly grow your rental portfolio until you have enough passive income to exceed your monthly or annual expenses. Residential rentals are one of the more common forms of income property, but there are other types, like commercial real estate.

Tax benefits

Owning real estate, especially rental properties, presents several tax advantages. Rental property owners can deduct expenses relating to the operation and maintenance of the property, including property management fees, property taxes, mortgage interest, and other expenses. They can also depreciate the property over the duration of ownership.

Depreciation deducts a portion of the property’s value over time to account for wear and tear. There are other tax benefits available, depending on the number of rentals you own, but in most cases owning a rental property offers favorable tax advantages.

Appreciation

Appreciation is an increase in a property’s value over time. While not always the case, most properties increase in value the longer they’re held. Since rentals are typically held as a long-term investment, this lets the owner collect cash flow, gain tax benefits, and potentially cash in on an increase in the property’s value over time.

Less risk in a recession

Cash-flowing assets are more likely to sustain themselves during an economic downturn because the investor isn’t relying on the value of the home to support the investment. The cash flow supports the property.

The cons of investing in rental properties

Of course, rentals have some downsides, too. Specifically, you have to deal with long-term property management and upkeep and you may find yourself with high vacancy rates.

Long-term management and property upkeep

Being a landlord isn’t for everyone. There’s a lot of work that goes into maintaining a successful rental property. Finding quality tenants can be tough, things break or need to be replaced, and tenants could stop paying.

You can hire a property management team that handles the active management for you, but their services can cut into your profits, and not all third-party management companies are considered equal. Before buying a rental property, make sure you understand what goes into running a rental property and determine if you’re willing to commit time and effort to become a landlord.

Higher than expected vacancy rates

Rental vacancy is a natural part of owning rental real estate. It’s the time in which property goes unrented and can range from a few days to a few months. Most landlords strive to keep their vacancy rates as low as possible, but sometimes the property can remain vacant longer than expected because of economic conditions, low demand, or asking too much for rent.

Not accounting for the vacancy or not having an accurate vacancy rate in your rental analysis can lead to a much lower return on investment.

Can You Flip a House With 50k?

This situation is a bit tricky because, with that amount of cash, you want to make sure to invest money wisely. Therefore, you want to look for the types of investment which will ensure a good return on investment. The good news is that real estate does, in fact, offer a myriad of ways to invest money for good returns.

Flipping properties is one answer to how to invest 50k in real estate. Since flipping real estate means that you buy a distressed property in an as-is condition, you can benefit from the fact that they are cheap real estate opportunities.

In this way, not only will the 50k cover the down payment for investment property (which should be around 20% of the property’s price), but it will also cover the closing costs and maybe some of the repair cost if not all of it. Here’s an example of how you can invest 50k wisely with this strategy:

You buy a foreclosed investment property. The actual market value for that property is $200,000. But, you get it for $150,000 since it is in a distressed condition. So, instead of paying $40,000 in down payment, you pay $30,000 because it’s below market value (some money lenders might require less than that though, depending on the lender’s down payment policies).

Now, you are left with $20,000. When calculating the repair costs, you find out that you will be paying between $15,000 to $20,000 in repairs. What does that mean?

It simply means that you have benefited on so many different levels. First, you buy real estate property for cheap. Second, you were able to save on the down payment and put the saved amount towards renovations. And finally, although you only paid $150,000 for the entire investment property, you still own a property that is worth $200,000 or maybe more once it’s renovated (forced appreciation).

Beware: fix-and-flip is one of the short-term investments that is financially promising. However, the risks are higher than other types of real estate investment strategies. So, make sure you do due diligence before stepping into it.

How Much do You Have to Put Down to Flip a House?

If you’re considering flipping a house for the very first time using a hard money loan to finance the project, the general rule of thumb for your down payment is 20-25% of the purchase price. On top of the down payment, a first-time investor will need to cover loan origination fees of approximately 3-4% of the loan amount plus standard closing costs (Title, Escrow, Taxes, Recording, Etc) of another 1.5% of the purchase price.

Example of a Fix & Flip Scenario for a First-Time Investor

A first-time investor is buying a house for $300,000 using hard money financing. The new loan amount will be $225,000 (75% Loan-To-Value (LTV)) with loan origination fees of 3% and fixed closing costs of approximately $4,500.

$300,000 Purchase Price
-$225,000 Loan Amount (75% LTV)
-$6,750 Loan Origination Fees (3 Points)
-$4,500 Closing Costs on Purchase (1.5% of Purchase Price)
=$86,250 Total Cash-to-Close

In addition to the $86,250 cash to close, some hard money lenders will require first-time house flippers to show liquid assets to cover the first six months of payments, including taxes and insurance along with enough cash on hand to cover the entire renovation budget, as provided prior to loan approval.

In the $300,000 purchase example above, the amount of additional liquidity required by the lender would look like this:

$13,500 6 Payments (Mortgage, Taxes, & Insurance)
+$50,000 Renovation Budget
=$63,500 Additional Liquidity Required

$149,750 Total Liquidity required ($86,250 + $63,500)

For a first-time house flipper, paying $300,000 to acquire and $50,000 to renovate the home, it will require nearly $150,000 in the bank to make it happen.

5 Ways to Flip Houses With no Money

There’s a lot of money to be made by flipping houses, so why don’t more people do it? Unfortunately, many people think you need hundreds of thousands of dollars saved to become home flippers. 

However, that’s not necessarily true. There are plenty of financing options available that make house flipping possible, even if you have no money to put down. Here are five different ways to flip a house with no cash: 

1. Hard money loans

A hard money loan is a short-term loan that is secured by real estate used by borrowers to purchase and repair a property with the intention of flipping it. In general, borrowers use hard money loans to purchase, fix up, and resell a property within one year. 

Fix-and-flip loans aren’t offered by traditional lenders like banks and credit unions. Instead, they’re offered by alternative lenders that cater to house flippers. Hard money loans are usually easier to get than traditional bank loans, but they often come with higher interest rates, higher fees, and shorter repayment terms. However, you can also get your money faster with a hard money loan, so you can take advantage of a great real estate deal. 

When taking out a hard money loan, make sure you pay attention to the rule of 70 percent. The rule of 70 percent is a guideline that says investors should pay 70 percent of the after repaired value (ARV) of a property, minus the cost of repairs needed.

For example, if you think a property will sell for $200,000 after you’ve completed renovations, and it needs $25,000 in repairs, you should only pay 70 percent of its ARV. 70 percent of $175,000 is $122,500, which is the maximum you should pay for the property. 

The 70 percent rule is just a guideline; there may be exceptions to the rule that are still profitable, but keep it in mind to ensure you don’t overspend. 

2. Private money lenders

If you need help financing a flip, consider private money lenders. Instead of working with a bank, you connect with family, friends, professional connections, and individual investors to get the cash you need. 

With private money lenders, there are three degrees of connections: 

• Primary circle: Family and close friends
• Secondary circle: Colleagues, professional and personal acquaintances
• Third circle: Accredited investors and hard money lenders

Working with a private money lender can be a win-win situation for everyone. You get the money you need to fund the flip, and your investor gets an investment they can keep track of and reap real results. 

When you borrow money from a family member, friend, or acquaintance, it’s important to treat it like a real business transaction. Set a loan amount, interest rate, payment schedule, and create a promissory note that outlines the terms of the loan. You should also get hazard insurance, so the investor gets their money back if something happens to the house. 

3. Wholesaling

If you don’t have access to a lot of money, another option is wholesaling, where you act as the middleman. With this strategy, the wholesaler contracts a home — usually one that is distressed or needs significant repairs — with a seller. Then, the wholesaler shops that home to potential buyers, selling them the rights to the contract for a higher price. 

The goal is to sell the contract assignment to a new buyer before your contract with the original homeowner closes. That way, no money changes hands, and you don’t have to put up any of your own dollars. 

Wholesaling is a great approach if you don’t have a lot of money and you have a decent network of potential buyers lined up. However, the process can be time intensive, and it can be risky. To minimize the risk of losing money, make sure you include a contingency in the contract with your original buyer that allows you to back out of the deal if you can’t find a buyer. 

4. Partner with flipping investors

If you don’t have money saved away for a flip, but have significant skills in marketing, selling, or renovating, you may be able to finance your deal by partnering with flipping investors. 

When you work with partner investors, the investors — either individuals or real estate investments groups — provide the capital for the flip. While this can be an easy way to get the cash you need, you need to contribute significant value to the partnership in order to get a cut of the profits. 

If you pursue this option, make sure you highlight your skills or connections that make your inclusion important. 

5. Home equity loan

If you have equity in your own home, it can be a lucrative funding source for your business. With a home equity loan, you can tap into your home’s equity to fund your flip. 

A home equity loan is a type of loan that is secured by your house. You can borrow a percentage of your home’s equity — its value minus what you owe on the mortgage. In most cases, you can borrow up to 85 percent of your home’s equity, so if you had a $200,000 home and owed $100,000 on it, you could borrow up to $85,000. 

Home equity loans can be an excellent financing option for home flips. Because they’re secured by your house, they tend to offer lower interest rates than other loans, and you can have up to 20 or 30 years to repay the loan, giving you a more affordable monthly payment. 

However, you should keep in mind that your house is collateral. If you fall behind on your payments, the bank could foreclose on your home. 

How to Flip Houses For Beginners

We have the eight steps to make sure you understand how to flip houses, before investing tens of thousands of dollars, and succeed in your business.

Step 1: Research for Your Ideal Real Estate Market

Not every market is a good fit for flipping houses. If you have $15,000 to work with as part of your house flipping business plan, you probably don’t want to begin your house flipping career in markets where homes start at $800,000.

Even investment property loans and financing won’t bridge that gap!

The less cash you have to work with, the lower the pricing of homes you’re likely to be able to afford to invest in. Investment property financing can cover the majority of your purchase, but there’s still a huge difference between a 20% down payment on a $50,000 property and 20% down payment on an $500,000 property.

How much cash will you have to work with? What markets can you afford to flip your first home in?

Many real estate investors refer to neighborhoods according to a “class” ranking, from A to D. Class A neighborhoods are the wealthiest housing markets, populated by higher-income professionals. One step down are Class B neighborhoods, which are solid middle-class.

Class C neighborhoods have a definite blue-collar, working-class feel. At the bottom of the ladder are Class D neighborhoods, which cater to the lowest-income earners.

While some investors specialize in flipping houses in Class D neighborhoods, they come with additional risks, too (I’ve had properties broken into, and more than once.) Insurance premiums will be higher in some low-income neighborhoods, relative to the purchase price. And in many low-income neighborhoods, you will likely be flipping to a fellow investor (a landlord), rather than a homeowner.

Flipping to another real estate investor often means lower margins, but potentially a smoother sales process. Investors can settle quickly, know what they’re looking for, and know-how to purchase with no muss and no fuss.

Consider targeting a Class B or Class C property for your first deal – solid middle class or stable working-class neighborhoods, respectively. (Take it from someone who’s lost plenty of money in low-end, Class D neighborhoods.)

As a final note, if your hometown is outrageously expensive, consider investing in areas 45 minutes to an hour away.

Step 2: Set a Budget and House Flipping Business Plan

Real estate investors are entrepreneurs – they’re in business and they need a business plan.

It doesn’t have to be fancy, overflowing with obnoxious corporate-speak lingo. But it has to include a budget, a timeline, and project scope.

How much do you have to invest? How much do you want to hold in reserve? Do you have enough to cover renovation draws until you’re reimbursed by your lender?

What kind of scope are you comfortable with? We usually recommend starting with cosmetic updates for the first house flip or two: kitchen and bathroom updates, new flooring, new paint, and new fixtures. This especially helps if you’re flipping houses on a budget or with no money.

Avoid structural problems like the plague. Avoid mechanical problems – they involve pulling permits, which you don’t want to hassle with on your first house flipping deal.

Yes, your margins will be narrower. But the project will move much faster, be lower risk, and cost less.

Step 3: Confirm Your House Flipping Financing

The last place you want to be is “Great, my offer was approved… but how do I actually come up with the money?”

Before you ever make an offer, make sure you have a lender who can fund your deal. Which is a good moment to mention that LendingHome funds up to 90% of the purchase price for investors flipping houses and 100% of the renovation costs with their hard loans.

When comparing pricing on bridge loans for flipping houses, pay particularly close attention to fees. Interest rates will be high on all bridge loans, compared to long-term traditional homeowner mortgages, but they actually matter less. In most cases you’ll only be making a handful of payments, so interest rates have less impact on your total house flipping costs than fees do.

Step 4: Network with Contractors

You also need to start building relationships with contractors before you buy your first house fix and flip. You want to start getting quotes once the property is under contract, or even before.

Part of learning how to flip a house is building a network of contractors: general contractors, electricians, roofers, plumbers, painters, HVAC experts. Get to know several lower-cost, well-rounded handymen as well.

Unless you’re doing the work yourself, half of the house flipping business is simply building a network. Contractors are an incredibly important part of that network, along with an outstanding realtor and home inspector.

Step 5: Find a House to Flip

Another crucial part of learning how to flip houses is learning how to find good deals. That means not only buying below market value, but with wide enough margins to cover your many expenses: two rounds of closing costs, carrying costs during your renovation, Realtor fees, and of course the cost of your time and work.

There are many strategies to find below-market deals on homes to flip. You could work with a Realtor to find on-market deals, work with wholesalers to find off-market deals, build a direct mail marketing campaign, and so on.

Part of finding a good deal as a home flipper is simply patience. Finding deals is a numbers game. If your strategy for finding deals revolves around direct mail, you may need to send 500 letters, tour 50 properties, and make offers on 20 of them, before one is accepted at a price that makes sense for you.

Tempting as it may be to compromise, stand by your house flipping business plan! If the numbers don’t meet your minimum, or the project scope is larger than what you’re comfortable with, keep looking. Otherwise, your costs to flip a house can change significantly, and not in a good way.

Step 6: Buy the House

Got a contract accepted? Great! Now what?

Typically, investment property lenders move much faster than homeowner lenders, but the process still takes time. With LendingHome, for example, you can start the process by entering your details and they’ll follow up with several loan options and interest rate scenarios you can select from.

Next, consider hiring a home inspector. Home inspections take several hours and are incredibly comprehensive.

While more experienced house-flippers may look for homes that need a complete renovation, in the beginning, you should stick with cosmetic repairs and updates, as we discussed earlier. Make sure the property is structurally sound and that the mechanical systems are in good working order.

Once you’ve confirmed that the property doesn’t have any unpleasant surprises waiting for you, walkthrough with several contractors. Get multiple quotes and get a sense for the differences in approach from the different contractors who provide quotes.

Choose a contractor and schedule them to start work on the same day you settle on the property.

Step 7: Renovate

Once you’ve settled, it’s time to start work!

You’re on the clock from day one. Every month that goes by, you’re paying interest and other carrying costs: utilities, taxes, insurance, and any other costs of owning that particular property.

In other words, that’s lost money! The faster you can complete the renovation project, the faster you can sell the property and pay off your loan. And the faster you get your payday while reducing the costs to flipping a house.

Flipping homes successfully is in many ways an exercise in efficiency. Many contractors will tell you “Oh sure, we can wrap up this project in a week!” Then a month later, they’re still messing around with the drywall.

The same goes for project pricing. Far too many contractors try to raise the project’s price on you halfway through a house flipping renovation.

This is all the more reason to choose your contractors well. If you’ve never worked with a contractor before, call as many references and past clients as possible.

Step 8: Sell Your House Fix and Flip

The final step of flipping homes is usually the simplest – selling it!

This is largely handled by your realtor, so make sure you hire an expert realtor for your market. Not all realtors are created equal, and many are part-timers or generalists, who aren’t experts in your specific market.

You can lean on your realtor’s expertise for pricing. Ideally, you should already have gotten their opinion on after-repair value (ARV) before even putting a contract on the property.

But ultimately, you’re the one responsible for pricing properly; your profits in house flipping depend on it. Make sure you understand the fundamentals of real estate pricing, before buying your first investment property to flip.

When many new house flipping investors start learning how to flip, they mistakenly assume they should get their realtor’s license. And sure, it can save you 3-3.5% on a listing agent’s fee, but it costs you in other ways. It costs time and money to take the course and the licensing exam. In many cases, it costs money to join a brokerage team.

For your first few house flipping deals, start by working with an expert local realtor. If you decide you love investing and want to flip houses for a living, you can always invest the time and money to get your realtor’s license.

House Flipping Business Plan

A house-flipping business plan is nothing short of the most important aspect of a real estate investor’s career. To that end, I remain convinced few things–if any–come with a better return on investment (ROI) than a well-crafted business plan for house flipping. We could easily argue a great business plan is invaluable, which begs the question: What is a house flipping business plan? Better yet, why does anyone looking to flip properties need to implement one?

To be clear, a business plan for flipping houses is exactly what it sounds like: a plan for flipping houses. However, it is worth noting that a truly great house flipping business plan isn’t meant for flipping a single property but rather multiple properties.

You see, a truly great flipping strategy isn’t meant to be used on a single property; it’s meant to guide investors through the house flipping process over the course of their entire careers. Therefore, any investor intent on running a successful rehab company needs to have a real estate flipping business plan of their own.

Today’s most prolific house-flipping business plans act as a blueprint for success; better yet, they award savvy investors the chance to make success habitual.

What works for one investor may or may not work for another, and vice versa. Case in point: there are several ways to draft a promising business plan. That said, no house flipping business plan template is complete without the following sections:

Executive Summary (Mission Statement)

Aptly named, the executive summary section of a house flipping business plan should sum up an investor’s intentions in a clear, concise mission statement. Perhaps even more specifically, the executive summary will serve as the foundation for an entire business;

it’s the first impression, and it’s what customers will use to determine whether or not they want to work with a respective company. Every executive summary should, therefore, clearly define the company’s purpose and long-term goals.

Team Dynamic

No rehab strategy is complete without clearly identifying the team’s dynamic. Identify the most important positions that will be held and who will hold them. There is no need to acknowledge every person in the rank and file, but it’s important to include the most important positions.

In addition to each person’s title and name included in the team dynamic section, be sure to include a description of the title and why it’s needed. This section aims to identify each person’s role moving forward and prevent any disputes over whose responsibility a specific task will be. More importantly, the team dynamic section will see that everyone has a clear idea of what they need to do.

SWOT Analysis

A popular acronym used to acknowledge a company’s strengths, weaknesses, opportunities, and threats. A SWOT analysis will help up-and-coming real estate investors identify the very components working for and against their current business plan. If for nothing else, success favors those that are most prepared.

Few things will prepare a real estate investor for what’s to come better than identifying their own strengths and weaknesses. Perhaps even more importantly, an in-depth, unbiased SWOT analysis will help investors carve out their own niche moving forward.

Opportunity

It is in the best interest of today’s investors to identify the problems that plague their industry and the opportunities that are inevitably created as a result. It’s a sad reality, but a truth, nonetheless: distressed homeowners are in a difficult situation.

However, their problems create an opportunity for investors to lend a helping hand. That said, investors need to identify their own opportunities and how they can take advantage of them. This part of the rehab strategy should identify the target audience’s needs and offer a solution.

Market Analysis

The market analysis section of a flipping houses business plan should identify the main indicators of the area investors intend to work in. As its name suggests, market analysis should offer an in-depth look at what’s taking place in the same neighborhoods investors intend to work in. Pay special considerations to the past, present, and future.

Among other things, be sure to reference changes in the market share, nearby competitors, historical shifts in the market, costs, pricing, and anything else deemed important to an investor’s success. The more comprehensive, the better a market analysis will serve an investor.

Financing And Projections

Not surprisingly, the best strategies will detail a company’s financial outlook. Financial literacy about one’s own company can’t be underestimated, and one should prioritize almost everything else involved in a house-flipping business plan template. Be sure to explain the model you intend to use and any pricing assumptions gleaned from the market analysis.

Additionally, investors will also want to include where exactly they intend to get their funding from and how they will secure money for future deals. To be safe, consider forecasting for at least three years; that way, investors are less likely to receive rude or unwelcome awakenings.

The financing section should also touch on how the investors intend to finance future deals. Include which sources will be used, and their respective fees and timelines. The more methods of financing a deal investors have at their disposal, the better. This section should include, but isn’t limited to:

• Private Money Lenders
• Hard Money Lenders
• Institutional Lenders
• Owner Financing Strategies
• Crowdsourcing

Growth Strategy

Creating a business plan for house flipping will require investors to think proactively. More importantly, house flipping business plans–even those accommodating new investors–should be written with the intentions of future growth. Scaling a business can prove difficult for those companies that aren’t ready for it.

Therefore, it is best to include a section in your initial rehab strategy that outlines any growth strategies that may be relevant. The best time to entertain a growth trajectory is from the onset of one’s career, not in the heat of the moment. Those prepared for growth from the beginning will find the transition to be a lot easier.

Lead Generation And Marketing

Every great house flipping business plan will include a section on how to generate leads through a proper marketing strategy. If for nothing else, this section will serve as the foundation for a great deal of the company to function off of. It is with a great marketing strategy that investors will be able to operate and maintain a funnel of hot leads.

It is worth noting, however, that a truly great marketing system is the sum of its parts. There isn’t a single marketing strategy investors should be using, but rather several. For a better idea of what today’s investors are using, here’s a list of what has worked for us:

• Direct Mail Marketing
• Bandit Signs
• Door Hangers
• Curated Lists Purchased Online
• Craigslist
• Networking
• Real Estate Investment Clubs

Goals And Objectives

No real estate investor can hope to realize success if they can’t clearly define what success for their own company would look like. In other words, it’s impossible to succeed if there are no clear goals and objectives to aim for. Likewise, you can’t possibly know if you realized success if you never sought to define what success actually means.

Success is, after all, a relative term. What one investor may deem as a successful business, another could completely disagree with. Therefore, today’s new investors need to develop their own definition of success; that way, they can have something to strive for and even reference when times get tough.

Competition

For as important as it is to know your own business, it’s equally important to keep tabs on the competition’s business. There is a great deal of information that can be gleaned from the way your competition runs its business. Therefore, I recommend dedicating an entire section of your house flipping business plan to the people you intend to compete against.

What are they currently doing that is working? What hasn’t worked out well for them? Do they currently have a competitive advantage? In understanding the competition, investors will have a better idea of how to proceed and what not to do. Be sure to learn from their successful efforts, but don’t ignore their shortcomings; they are just as valuable.

Exit Strategies

No plan is even remotely close to complete without a section that outlines potential exit strategies. Therefore, it is at this point in the planning process that investors need to weigh their available options. First, evaluate the property based on its merits and determine how it may meet your specific investing goals.

If, for nothing else, there’s an ideal exit strategy for each property, but it must line up with your own goals. In other words, you need to know whether you will flip, rehab, wholesale, or rent the asset before you even buy it. Not only that, but you’ll need a backup plan in place in the event things don’t go according to plan.

How to Start a House Flipping Business

If you’re determined to invest in short-term real estate and flip a house, here’s where to start:

Step 1: Write a business plan

Before taking any action, financial or otherwise, it’s crucial that writing a business plan is the first step in starting your own house-flipping business. A business plan will be key to keeping your business on track, helping you estimate profits, and getting investors.

Your business plan should be fairly in-depth and there is a lot of information you should be sure to include in it. You can either write it on your own or use a business plan template to help you. No matter what you choose, you should be sure to include the key parts of a business plan.

You’ll want to start out with an executive summary detailing the purpose of your business, the vision you have for it, some high-level financial projections and identify who will be involved in the business. The rest of the business plan should include a section on the competition and the demand for your business.

After all, you need to be sure that there’s enough demand to sustain your house-flipping business—a lack of demand for a small business is the reason 42% of small businesses don’t make it. That’s a group you don’t want to be a part of simply because you didn’t do your research before starting your business.

You should also use your business plan to lay out what exactly your business will do and how much it will cost, along with how much you expect to make. With house flipping, you’ll want to detail how much money you have, how much you expect to need to buy properties and flip them, and then how much you expect to make back.

Step 2: Grow your network

Flipping houses is tough work, and you’ll need a plethora or resources to help you finish each job. Identify the resources already available to you to take full advantage of your strengths. Experience in the real estate business, access to a network of excellent craftspeople, or just a promising property are all assets.

Talk to friends or relatives involved in real estate investment, particularly in the area where you plan to invest in property. Anecdotal evidence and word-of-mouth advice can help you find reputable wholesalers, contractors, and realtors to help you find and complete jobs within budget.

Reach out to your existing professional or personal network to find contacts within the industry, and seek out experts for mentoring and advice. Get active in local real estate investment groups or find your chapter of REIClub to connect with industry professionals.

Step 3: Choose a business entity

In order to operate your house-flipping business legally, you’ll need to choose a business entity and register your business with the state in which you plan to operate. While there are many business entity types to choose from, you will want to opt for one with limited liability protection, such as an LLC or corporation.

Liability protection is especially important for a house-flipping business because there are many opportunities for things to go wrong. If someone sues your company over an issue with a property you flipped, you’ll want to make sure your personal assets are protected. If you’re unsure which entity is right for your business, consult a business attorney to help you weigh your options.

Step 4: Obtain an EIN, insurance, permits, and licenses

Registering your business is the first step to legally establish your operation, but there are a few more steps to take to make sure you’re officially allowed to start work as a house flipper. First, you should register for an employer identification number, also known as an EIN.

Think of this as a socials security number for your business, which you will use for tax purposes, as well as when applying for business loans or a business bank account or credit card. Applying for an EIN can be done online through the IRS website.

Next, you’ll want to look into your business insurance options. If you hire employees, you’ll need workers compensation, unemployment, and disability insurance. Beyond those policies, you should also look into general liability and commercial property insurance to protect yourself, your business, and your properties.

Finally, you’ll need the proper business licenses and permits to operate your business. The licenses and permits you need will depend on your state and the scope of work you’re doing; however, you can expect to need several permits when working in the construction business.

Check with your local chamber as commerce and consult with your business attorney to make sure you have all the paperwork you need before you start any work.

Step 5: Find suppliers and contractors

Once your business is legally established, it’s time to find contractors and suppliers to help you get your business going. Even if you plan to contribute sweat equity to your house-flipping business, you’ll probably need additional contractors to complete a project successfully. Look for contractors with a portfolio of demonstrable work, references, and positive feedback from previous projects.

A trusted general contractor can also look over any remodeling plans and budget projections you make to check for accuracy with regard to cost and timeliness. Finding suppliers who are reliable and can work within your budget is also incredibly important. Tap into your network and do your research to find some reputable options.

Step 6: Assemble a team

Whether you plan on bringing in a partner, hiring outside contractors, or renovating each property yourself, you’ll need to recruit a team of qualified people to complete a successful flip. In particular, consider sourcing for these roles, which could really help you keep things organized and get the most out of your investment:

Business partners or investors

A good potential partner might be an active private investor in your personal network or a real estate investor looking for a project manager. A good business partner brings an asset or skill to the relationship—be it capital resources, skilled labor, industry expertise, or simply a great work ethic and determination to make an honest profit.

According to Jamell Givens, a partner and real estate investor at Leave the Key Homebuyers, the advantage of having a business partner is the ability to evaluate a deal in different ways. Whereas one partner might think only of a home’s profit potential, the other might bring local knowledge or connections with contractors.

Realtors or property owners

A background in real estate and property ownership is a huge plus in the house-flipping business. An experienced partner can help you search efficiently for prospective properties, identify the most valuable improvements for a given area, and navigate contracts and sales once the rehabilitation is complete.

Or, if you know a homeowner looking to sell and willing to loan you the money for necessary repairs and renovations, owner or seller financing may work for you.

Legal counsel

Seeking legal advice about any financial agreement or contractual obligation is a good idea, especially when you’re considering making major investments and buying property.

Step 7: Obtain financing

You’ve found a partner, done your research, and maybe even identified the first property you want to flip. In other words, you’re ready to finance your house-flipping business’s first fix-and-flip.

If this is the beginning of your house-flipping career, you’re probably not going to be eligible for a traditional bank loan. Typically, banks only approve businesses with many years of profitability under their belts. And in house-flipping, time is money. That makes the best fix-and-flip loans short-term financing option—usually around 12 months. Repayment terms on bank loans, on the other hand, can run between five and seven years.

That said, you do have a wide variety of fix-and-flip loans available to you. As a brand-new business, you also have a good option to tap into your personal funds or investments. It’s a little risky to throw your own skin in the game—in other words, your nest egg—but it’s likely that your business doesn’t have the revenue and financial stability that most lenders want to see before extending you a business loan.

As always, it’s wise to explore all of your possible options before settling on a loan that best suits your needs. Start your search with these options for new house-flipping businesses:

Friends and family loan

Many rookie real estate investors fund their first projects with personal loans from partners, friends, or family members. If the loan is comfortably within the lender’s means, this alternative to a bank or private loan can alleviate some of the pressure of a traditional loan, as well as ensure a degree of accountability.

If a friend or family member is an investor or partner in your house-flipping project, it’s a good idea to establish terms of the arrangement in writing as soon as you reach an agreement.

Tap into your 401(k)

For first-time flippers with a retirement plan who are not planning to retire in the near future, one financing possibility is taking out a loan from your 401(k). This option incurs the risk of losing your nest egg, which is always a scary prospect. But financing a business with a 401(k) might be the only viable option for entrepreneurs just starting out—and if you’re smart with starting your house-flipping business, you can hopefully make back the cash and then some.

There are two main options for 401(k) loans: The classic 401(k) loan, in which the IRS allows you to borrow up to half the vested balance, or $50,000, whichever is amount is lower; or a ROBS loan. You’ll determine which type of loan makes the most sense for you based on the size of your investment and your willingness to dip into your retirement savings.

Combination financing

Many experienced short-term real estate investors find success using multiple financing sources to purchase and renovate a property. Depending on your own capital, a partner or investor, and external lenders, it’s likely that you’ll end up using a combined solution to finance your house flipping business.

Step 8: Source your deal

The success of flipping a home depends in large part on supply and demand in the local real estate market, as well as the cost of labor and value appreciation of the renovations.

Identifying your target property market might help you decide if a real estate wholesaler, auction, or traditional broker is the right choice for your project. If you’re interested in distressed or foreclosed properties, a wholesale broker or auction will have higher volumes of properties available.

A traditional broker might be right for you if the real estate market is new to you or if you need help finding a specific type of property or building.

Determine the scope of renovations or rehabilitation you are equipped to complete on a property, keeping in mind the duration and amount of your fix-and-flip loan.

How Much Can You Make Flipping Houses?

That depends on what it costs to acquire, fix and sell a property. Costs include:

• The amount you pay for the property
• Financing costs, if you borrow to buy
• Opportunity costs, if you pay cash (what you could earn if you invested that money elsewhere)
• Repair and renovation costs, including permits
• Selling costs, including real estate commissions
• Utilities, HOA dues, maintenance, insurance and other holding costs

Understand that you may have to hold the property longer than expected, so be prepared for ongoing costs or to accept a lower price. Always have an exit strategy.

So if non-distressed homes in a neighborhood are selling for $200,000, and you can pick up an ugly duckling for $100,000, how much can you make?

If your repairs and upgrade estimates come to $50,000, and you add 20% for contingencies ($10,000), you’ve got $40,000 potential profit to play with. If your selling costs include $12,000 for real estate commissions and another $2,000 for seller-paid costs, your potential profit is down to $26,000.

Check “average days on market” in your area. If it takes you two months to complete the improvements, six months to sell the house, and costs $1,000 a month to carry it, subtract $8,000 for carrying costs. Your potential profit is now just $18,000 after eight months. Many experts consider anything under $20,000 unacceptable.

But if homes are selling quickly, and your total time to renovate and sell is three months, your potential profit is $23,000. Assuming that you could do that four times a year (once every three months), your annual profit would be $92,000. So how much you make depends on how quickly you can turn over the homes and how many flips you can manage in a given time.

How to Flip a House For The First Time

Buying a property, renovating it, and then putting it up for sale can ensure that your investment gets a timely entry and an exit. However, buying a real estate asset and then selling it quickly (a process known as flipping) is not as easy as it sounds.

It requires a careful evaluation of the house/property, an understanding of the expenses that would go into improving the asset, and then knowing who to sell to and how to sell. Not getting the basics right can mean a loss in spite of all the efforts which you put into the whole investing process.

The following tips will allow you to successfully flip your first real estate investment and earn a decent profit for your efforts.

1: Start small

While you are excited and full of energy to start your new entrepreneurial venture, it is important to stay grounded. You don’t have to do a big transaction to impress yourself and your family. Focus on a single-family home or a small house. Keep a target budget in mind.

Usually, you can find something for $50,000 or less. A small property means less renovation, lower expenses for you, and an easier time selling the property.

Selling a $300,000 home can be a lot more challenging than selling a $60,000 property. Keep it small, keep it simple. After all, you have your entire life to progress towards larger deals.

2: Location is king in real estate

In real estate, there is a saying made up of 3 words: Location, Location, Location! You can buy the most incredible house that is in great shape requiring very little renovation.

However, if it is located in a not-so-great neighborhood, then you are going to have a tough time selling it. Even if you do sell it, you might not even get the market price for the home because the “negative” location will probably shave off a chunk of the price.

The area in which the house is located is even more important than the condition of the house. As a house flipper, you have to think like the buyer who you will sell the house to.

That buyer is going to look at what the neighborhood streets are like and what the overall image of the neighborhood is like. If those things do not satisfy the buyer, then no matter how well you renovate the house, it will be a tough sell.

It is better to buy a crappy house in a great location than the other way around. So, as a first-time house flipper, do your homework on the quality of location before making any investment.

3: Find the right sellers to make your first investment

Not all sellers are going to move as quickly as you need to if you plan to flip a house within a few months. You need to find sellers who are motivated enough and will sell the house to you at a reasonable price.

While you can get some great deals in a foreclosure event, it is not the only source of finding a quick and attractive deal.

You can focus on homes of couples that are getting divorced, homes that are dilapidated or in despair, or couples who may be expecting a baby.

These profiles of sellers tend to be willing to sell their homes faster than the average homeowner. Any person with an incentive to sell fast is what you are looking out for.

Another bonus would be the opportunity to partner with the seller. You can propose to share the profit of your flip-and-sell transaction with the seller in return for a lower price.

That way, you spend less when you purchase the property and the seller also becomes more likely to lower the price since he/she will get a cut from the eventual profit.

First-time home flippers tend to be short on initial capital and such an arrangement with a seller can kick-start the investment journey of a young entrepreneur.

4: Know what to renovate and leave the rest

Knowing what to renovate is a balancing act. If you under-improve, then you run the risk of losing a sale opportunity. If you over-improve, then your cost goes up and eats into your returns. Hence, you need to have a clear idea of what all you will renovate before you even make an offer to buy the home.

One good way of finding this clarity is to be aware of the current trends in the market. Whether it is tankless water heaters, a new technology for HVAC (heating, ventilation, air-con), or hardwood floors, make sure you include those latest design/appliance options in your renovated home.

Concentrate on the kitchen and the bathrooms. Improvements in these rooms tend to pay off quite significantly when you sell.

Remember that you are renovating to enhance the value of your investment. You are not making improvements to make the ideal dream home. The ticket size of the home will also guide you as to what renovations are necessary and what ones aren’t.

For example, if you have to sell a million-dollar home, then all sorts of thrills and frills are needed to make the house look impressive. But, for an average family home that you want to sell for a few thousand dollars, your target audience will not expect to see any thrills and frills. So, renovate according to what and to whom you are going to sell.

5: Delegate work

This skill is something that applies to management in general and not just real estate investing. But, for a first-time flipper, this skill is one of the most important. You do not want to do every single piece of work yourself.

Yes, there is the temptation to do the work yourself and save money on contractor fees but then the work quality and the finished product should also look impressive. That is what will ultimately sell the home.

You can try to do some painting and tiling work yourself, but let the experts do major works like wall additions or plumbing. Professionals will not only work faster than you but also ensure that your home inspection passes its test.

6: Invest in some real estate education

As a first-timer in the industry, you may not be aware of the nuances, the industry jargon, and other knowledge about flipping properties. Hence, it is a good idea to educate yourself and learn from those who have already flipped houses successfully.

You can attend seminars on the topic, read books, take a course or two, and ideally work with someone who is flipping houses regularly. There are plenty of videos on YouTube as well which you can watch for free.

The goal is to learn how to participate in real estate auctions, how to find buyers, how to work with contractors, and how to manage your cash flows.

Another thing that new entrants or first-time flippers can do is join local real estate clubs. You can even look up national and regional real estate clubs on Facebook.

The idea is to surround yourself with experienced folks from whom you can learn. Attend meetings of any real estate investing clubs that you join and start building a network.

Become an active member of social media groups by posting questions and comments.

7: Prepare yourself on a personal level

Flipping properties is a fast-paced job. It requires very good planning, time management, and organizational skills.

You have to conduct interviews with contractors, visit properties, talk to architects, get local permits, and secure funding. All of this needs to be done in a timely manner and will require you to plan out your schedule.

Always remember to keep some extra buffer for unexpected costs. Around 10-12% contingency is normally sufficient.

You do not want to do all the hard work and then not make a profit because of some last minute curve-ball.

Since you are new to this business, there is a high probability that something unexpected will show up at the 11th hour.

Lastly, learn to communicate well and treat everyone with respect. Your reputation can take you a long way or it can break you as well.

Work on being positive and optimistic and things will work out for you.

Average Net Profit For Flipping a House

Buying a house at below market value, fixing it up, and selling it is house flipping and it can be profitable.

Just how profitable depends on the situation. Some investors make as much as $100,000 or more and others make less than $20,000.

So what’s the average?

Typically, the average investor makes $30,000 net profit on a house flip if all factors align. Let’s look at what factors to consider.

What’s Your Gross Margin?

Your gross margin is basically the profit you make when it’s all said and done. It includes the price to buy the home, the rehabilitation costs and the cost to sell it. 

As you can imagine, every investor’s profit margin will differ.

It doesn’t matter if you buy a house at ridiculously low prices, if it costs an arm and a leg to fix it up, it takes away from your profits. 

But, if you buy a home for a high price and it still costs a lot to fix it, you may not have any profit.

What’s The Right Acquisition Price?

This is the million-dollar question. What’s the right acquisition price? There is no one-size-fits-all answer here.

Instead, we can look at the percentages. If you can buy a home for 75 – 80% of its market value, you’re in good shape. This means you must know the home’s market value. Talk to a real estate agent or local appraiser to find out the average value for the area.

If you can buy the home for ¾ of that price, you have room to fix it up and sell it. But again, it depends on the total cost of the repairs. If a home is in horrendous condition and requires extensive repairs, you may want to buy the home for a lot less than 75% of its fair market value.

How Much Are The Renovations?

It’s a good idea to develop relationships with contractors in the area. When you work exclusively with certain contractors, you’ll know their prices and they may even offer lower prices if you send them consistent business.

The lower the renovation costs, the higher your profit margins. While you can’t 100% predict the renovation costs before you buy a home, you should have a good idea, so it can help you determine if it’s a good investment or not.

What Are The Carrying Costs?

Know the market before you invest in a home. If it’s slow, you’ll have more carrying costs. Can you afford them?

Carrying costs are the costs you incur while you still own the home. Once you buy and renovate a home, it’s still your responsibility until you sell it. If the market is slow, you may sit on it for a few months.

This means you must continue paying the mortgage, insurance, taxes, and the home’s upkeep. Can you afford the carrying costs? They take away from your net profit as they figure into the cost of buying, fixing, and holding the home.

Make sure you leave a large enough cushion for the carrying costs based on the average time on the market in the area.

How Much Does it Cost to Flip a House?

Any experienced flipper will tell you there’s a lot of money to be gained and spent flipping homes. Unfortunately, the spending part comes first. It’s certainly a case of you’ve got to spend money to make money.

No matter what type of home you buy or the financing that’s used, there are always going to be two expenses.

Purchase Price

Whatever the house costs upfront is the initial starting cost, also known as the acquisition cost. This is typically the largest cost of a flip and can set the tone in terms of how much profit you earn.

One formula for coming up with a purchase price for a fixer to flip is to reduce the estimated after repair value (ARV) by 30%. Next, subtract the estimated cost of the renovations from that number. For example, if comparable renovated homes in the area sell for $200,000 and the renovations will cost $40,000 then a good purchase price is $100,000 ($140,000 ARV -$40,000 repairs).

Taxes

You’ll have to pay for property taxes during ownership as well as short-term capital gains taxes on the profits. Federal short-term capital gains are taxed at the same rate as income. Some states also take a cut through capital gains taxes. The federal tax is a given no matter where you buy.

There is also a third expense that almost always comes into play. This expense is actually many expenses rolled into one and takes a lot of effort to budget.

Renovations

It’s the biggest wild card in the flipping game. Renovations are tricky because they aren’t straightforward expenses. Current condition, material quality, and the contractor you use can all affect the price.

Read Also: What Are The Best Ways to Invest in Real Estate

It’s always best to have a general contractor come out and write up an estimate before you purchase the property to get a rough idea for budgeting. But even then, surprises almost always happen once things get underway. That’s what a contingency is for!

Here are some other common costs you’ll need to account for in your budget when you’re running the numbers.

• Agent Commissions – If you sell the house through a licensed agent (which is highly recommended) a commission of up to 6% of the purchase price will need to be factored into the budget.
• Marketing Costs – If you decide to sell the house yourself you’ll have to cover the marketing costs.
• Loan Payments – Getting a loan to purchase the house? That means you’re like 39% of flippers today according to Attom Data Solutions latest house flipping report . You’ll have to factor in monthly loan payments with an interest that could be as high as 12%.
• Closing Costs – If you’re getting a loan, the closing costs will be around 5% of the purchase price. You may also have to pay closing costs when you sell the home.
• Utilities – Utility service has to be established in order to do work at the property and show it once it’s up for sale.
• Insurance – Whether or not you get a loan, you’ll want insurance to protect your investment.
• Interest on Credit Cards – Using credit cards to pay for renovations? Include the interest payments in your budget.
• Photography – This one may be built into the real estate agent’s fees. If not, then you’ll need to budget at least a few hundred bucks for professional photography.
• Inspections – If you plan to (and are able to) do an inspection before purchasing a property that will be an added expense.
• Staging – Vacant homes don’t sell as quickly as lived-in/staged homes. It’s pricey, but staging could be worth the additional cost because it can also net you a higher offer price. The average price for staging is $500-600 per room, per month.
• Permits – Depending on where you live and what you’re doing, permits can set you back thousands.

Final Words

At the end of the day, if you wish to make money with house flipping, you will need to know what you are getting into. Having done your homework on the subject will keep your boat sailing for long. You need to be able to acquire enough money, time and patience to be able to go through with this entire process and derive maximum results while also making money with house flipping.