If you’ve kept your dream of house flipping on the backburner, maybe it’s time to bring it front and center.
House flipping is the most popular it’s been in the last 10 years, as reported by CNBC, but that doesn’t mean everyone’s successful at it.
If you want to earn a real income from it, you need to learn how to start flipping houses in a smart way.
Can you really flip houses for a living?
Yes – but you have to choose homes wisely and learn the tricks to renovating them in such a way that you save money. It’s also crucial that your finances are in order if you want to get loans to help you achieve your house-flipping goals.
It’s a total myth that once you have the money to flip a house you can just purchase a home that’s being sold at a low price and expect to turn it into a money-making scheme overnight.
One of the sad facts about house-flipping is that 12 percent of house flips are sold at break-even or a loss before all expenses, as Money reports.
However, you can increase your chance of making house-flipping success by knowing how to choose the right kinds of houses to renovate and sell to make a decent profit.
- 1 Look In The Right Location
- 2 Renovation: Make It A Flip, Not A Flop
- 3 Avoid Falling Into The Trap Of Unnecessary Renovations
- 4 Start Small When Starting Out
- 5 Follow The 70% Rule
- 6 Find The Right Team
- 7 What If You Do The Work Yourself?
- 8 How To Finance Your Flip
- 9 Types Of Loans That Help You Flip Your House
- 10 How To Sell Your Flip
- 11 How Much Can You Make By Flipping Houses?
- 12 How Much Does The Average House Flipper Make?
- 13 Is Flipping Houses Good Business?
- 14 What About High Property Prices? These Can Be A Good Thing!
- 15 Related Questions
- 16 Bottom Line
Look In The Right Location
One of the most important things to look out for when house flipping is the location.
Houses are valuable (or not) based on their neighborhoods.
You can turn a property into one worthy of being featured in a property magazine, but if it’s located in a shoddy or crime-infested neighborhood, you won’t be able to make a lot of money from selling it and you will probably also battle to sell it.
It’s a fact: The state of the neighborhood matters to prospective buyers, therefore make sure you spend time researching different neighborhoods and search for elements that signify potential for successful house flipping.
- Look out for signs that the area is thriving, such as that there are many real estate sales happening. That said, avoid choosing to flip a house where it seems like everyone wants to sell their home on every street. This can indicate an unhealthy local economy or a social issue that’s driving people away, such as high crime.
- Check for signs that there’s employment growth in the area. Is there business popping up everywhere? Are there new apartment buildings and shopping malls being built? Those are both good signs that there are interests and money in the area.
- Make sure that the property is nicely situated. What is within walking distance of the property? This really does matter. For example, if it’s within close proximity to public transport services, this will increase its value. On the other hand, if it’s close to airports and highways, this will decrease its value due to factors such as pollution and noise that will deter buyers.
Pro tip: If you’re just starting out, it can benefit you to hire a real estate agent who can help you find the right property because of their industry knowledge.
Renovation: Make It A Flip, Not A Flop
The best home to flip is one that requires the least amount of effort.
That doesn’t mean you shouldn’t undertake greater renovations on a home that you’ve calculated could sell well or that could really benefit from massive updates.
However, while you might be raring to go when it comes to doing renovations on a home, bear in mind that there are some renovations that will be expensive and should, therefore, be avoided, especially if you’re a beginner.
These include roof replacements, structural changes to the house, and rewiring.
In addition, a house that has a serious mold problem can be complicated because water damage is often the main cause of mold infestations which can be harmful to one’s health.
Trying to resolve such issues can result in greater costs and prevent you from making a profit by the end of the flipping process.
Make sure you calculate enough money for renovations: When you’re busy estimating how much it will cost you to make repairs and renovations on the home you’re interested in flipping, always add an extra 20 percent to the final amount to cover any extra expenses that could crop up.
Avoid Falling Into The Trap Of Unnecessary Renovations
While improving the bathroom and kitchen in a house is always beneficial, there are other so-called worthy renovations that are actually a waste of time and money because they don’t increase the home’s value.
- Expensive décor, such as decorative light fittings. Any décor changes that are focused on your personal taste or the latest styles can become dated or simply not appeal to prospective buyers.
- Swimming pool. While it might look great on the property, a swimming pool can give potential buyers safety concerns, especially if they have young children.
- Extensive landscaping. It might look great, but a potential buyer could look at it and think it’ll cost a lot of money to maintain. You want to avoid anything that will give the buyer a hassle down the line.
To prevent wasting money on renovations that don’t translate into home selling value, remember these important points:
- Your renovations have to be in line with what buyers in your area are looking for. For example, if you’re in a poorer area where crime is a big concern for residents, home buyers will likely be looking for safe and secure homes instead of fancy ones kitted out with decks or the latest appliances.
- You should consider the value of other homes in the neighborhood so that you don’t overspend on unnecessary renovations that won’t be worth it. You might think to add an upstairs room or two will make the house sell for more, but if all the other houses in the area are single-story homes, then potential home buyers won’t want to spend more money for your home – it will seem overpriced to them.
Start Small When Starting Out
Figuring out how to start flipping houses can feel overwhelming, but you can make it less so.
Consider that it can be unrealistic and stressful to purchase a home that requires a lot of work and renovations before it can sell and make you a profit.
That’s why if you’re a beginner, you should purchase a home that just needs light cosmetic repairs.
This will result in less money being spent on the house while helping you increase your skills so that in future you can take on the bigger projects that require important renovations.
Bear in mind, choosing a home that requires just a bit of TLC can go a long way to boost its value.
For example, painting the exterior of your house in “greige” (grey or beige) can increase the appeal of your home.
Research by real estate company Zillow found that when homes were painted in either of these shades, they sold for approximately $1,500 more than houses that were painted in white.
This is a simple example of how investing in small cosmetic touches can really help to increase a home’s selling power. Staying informed about these trends can be useful to you as a house flipper.
Follow The 70% Rule
Expert house flippers sometimes talk about the 70% rule.
It’s a solid rule to follow when you’re interested in how to start flipping houses just because it can prevent you from falling into one of the most common traps: overpaying for a house.
The 70 percent rule basically means that if you’re investing in a house, you shouldn’t pay more than 70 percent of the after-repair value (ARV) of the property minus the cost for the repairs that are required on it, as reported by Money Crashers.
So, to break it down, let’s look at it like this: If the home’s ARV is $300,000 but it requires $40,000 in repairs, the 70 percent rule would mean that you should not spend more than $170,000 for the home in order for flipping it to be most profitable.
In other words, $300,000 (ARV) x 0,70 = $210,000 – $40,000 (for repairs) = $170,000
Find The Right Team
Once you’ve purchased a house that you want to flip, you need to hire a strong team to do the work on renovations promptly and efficiently so that you can flip homes quickly and without complications.
You’ll need to have a contractor, painter, plumber, electrician, as well as other professionals who might be required, such as an architect, landscaper, and handyman.
In the case of a property you’re interested in that has complicated title problems or ownership, you’d require a settlement company agent or title attorney who’s experienced in the situation to help you out, as Forbes reports.
Once you have your team, you can get started on preparing the house for sale.
While you don’t want to rush through the process, it’s a good idea to take between four to six weeks to make renovations on the home so you can sell it in the same housing market, broker Bobby Curtis tells Fox News, while keeping the house for less than eight weeks will reduce taxes and interest.
Make sure your network to gain more contacts in the industry so that you increase your chances of getting a quality team. The more skilled they are, the quicker the process will flow.
What If You Do The Work Yourself?
If you’re considering doing most of the renovating yourself, it’s probably best to rethink your decision unless your day job involves the projects you’re going to undertake, such as if you’re an electrician or builder.
Otherwise, stick to smaller DIY projects, such as painting or stripping floorboards. These are easy to do.
You want to leave the bigger projects to the professionals, such as when it comes to electrical and plumbing work.
The house you’re going to flip is an investment and you need to find skilled workers who will ensure that you make a good profit.
That also means that you shouldn’t try to find the cheapest labor you can. It might be good for your pocket now, but you might end up having to pay more for mistakes that have been made at a later stage, which will cost you.
How To Finance Your Flip
You might want to take out a mortgage to finance your flip, but this can be tricky.
Traditional mortgages take a long time to arrange and they can be difficult to acquire.
Private loans can be much more valuable, and these can come from people you know or from people you’ve connected within the industry with whom you’re partnering up for the house-flipping adventure.
You can also choose to get money from hard money lenders.
These specialize in loans for investments such as flipping homes and they offer much quicker loans than traditional ones.
An important factor for them is the value of the property or home you’re purchasing – and this might be more important to them than calculating your income and credit – because they want to ensure that you can sell the house within a good timeframe so that they can get their money back, as The Balance reports.
However, you need some successful home-flipping projects in your resume to impress hard money lenders.
Types Of Loans That Help You Flip Your House
It’s not just a hard money loan that you have as an option if you want to flip houses.
Let’s take a look at some of the different types of loans tailored to flipping and compare them to the hard money loan.
|Type Of Loan||It’s An Option For You If||Benefits||Things To Consider|
|Hard Money Loan||If you’ve got experience with flipping houses successfully.||It’s easier to get this loan approved, and approval and financing can happen within 15 days.||This type of loan has a high-interest rate.|
|Bridge Loan||If you’re an investor who wants to close the loan quickly (and get other types of financing at a later stage if required).||This is a short-term loan that gives you quick and easy financing for a certain period of time.||Lender requirements vary, but lenders look at the strength of the investment as well as your general financial portfolio to ensure you qualify for this loan.|
|Cash-Out Refinance Loan||If you already own investment property and you have 30-40 percent equity.||You can use this cash-out refinance loan on a non-owner-occupied investment property (up to four units).||Lenders of these loans are generally stricter than those of hard money loans because they’re usually given by traditional mortgage lenders or banks.|
How To Sell Your Flip
You’ve bought a property and fixed it up.
Now you want to sell it. What price should it sell for?
You can get a good idea of how much you’ll make by finding comparable properties in the area.
These are homes that have recently been sold, and their selling prices will give you a good idea of how much you can expect to get from your sell.
Pro tip: Make the selling number even more precise by finding properties that are more like yours and that are within a ¼ mile radius of your home. Consulting with a real estate agent can also help in this regard to give you more information about homes in your area.
Don’t Neglect Staging Your Home
Hiring a professional stager can be very beneficial for you when selling your home because it’s sometimes difficult for potential homeowners to imagine themselves in a house they’re interested in purchasing.
While staging the house yourself can be done if you lack experience this could prevent you from selling the house at a good price.
According to stats from the National Association of Realtors, the average cost of staging is approximately $675, however, 32 percent of realtors who were surveyed in the association’s profile stated that staging a home can increase the price buyers are willing to pay by up to 5 percent.
How Much Can You Make By Flipping Houses?
While potential earnings you see on house-flipping reality TV shows aren’t always realistic, the truth is that there are opportunities for making money quickly by flipping houses.
If you’re skilled at what you do, flipping a home could result in profits higher than the annual U.S. average salary, which sits at approximately $31,000.
In addition, you can gain these profits within a few months, which is a bonus.
How Much Does The Average House Flipper Make?
It’s not always easy to calculate an average house flipping income because how much you make depends on various factors, such as how skilled you are at finding worthy homes to flip.
It’s worth bearing in mind how much money you can make as a house flipper also depends on the state in which you’re choosing to flip homes.
For example, house flippers in California made around $100,000 per home in 2013, while those in Massachusetts earned an average gross profit of $103,384, as reported by Lend Edu.
Is Flipping Houses Good Business?
House flipping has been gaining a large amount of popularity, with a study by ATTOM Data Solutions finding that 48,457 homes and condos were flipped during the first quarter of 2018.
In addition, homes that were flipped during this time sold at an average gross profit of $69,500.
This is an increase from the average gross flipping profit of $68,250 in the previous quarter as well as an increase from the average gross profit of $66,287 back in 2017’s first quarter.
So, there’s definitely work available for you if you’re interested in flipping homes.
What About High Property Prices? These Can Be A Good Thing!
Although it can be challenging for property investors to find houses at low prices because home prices are on the rise, this can actually be a benefit to someone who’s interested in house flipping.
That’s because if properties are selling for higher amounts this means that supply isn’t meeting the demand, Mashvisor reports.
This also means that you can end up selling the renovated property at market price and increase how much profit you make from it.
Will You Be Taxed On Your House-Flipping Profits?
If you’re working as an individual, your profits will probably be added to your income, and you’ll be taxed on this as a whole.
The rate of corporation tax is lower than that of income tax, so it’s a good idea to set up a house-flipping company if you see yourself wanting this career.
Do You Need To Write A Business Plan?
A business plan can be useful to help you determine your purpose, provide market analysis, and produce a financial strategy.
It’s a formula that can guide you and your team through all the stages of the flipping process, increasing your chance of success and could even help you get financing.
While there’s no guarantee you’ll be a successful house flipper, there are definitely things that can improve your chances.
Choosing the right financing and team, finding a house in the right location, as well as not doing too many renovations, can all help you to make a profit when selling.
Although the thought of how to start flipping houses might seem overwhelming, by breaking the process down into the above tips and starting with a small project, you can begin the process and perhaps enjoy it so much that you create a house-flipping career for yourself.