If you’re seeking quick get-rich ideas, here are the top tips for house flipping for beginners. Is flipping houses easy? Well, if you want to be a successful house flipper, you need to understand the basics of investment in wholesale real estate and explore the latest tips and strategies for selling real estate and making profits.
What is the house flipping business? In this business, individuals invest money to purchase a property and then sell it after some time to make a profit. You earn a profit in this business as the value of the property increases over time and the price appreciates.
By engaging in frequent buying and selling of houses or simultaneously acquiring multiple properties, you can generate a steady income through flipping the purchased properties. So, how do you start flipping houses for profit? There are countless questions to answer! Let’s start with the basics.
Knowing Your Destination: House Flipping Business Plan
Take a holistic view while flipping houses and give it your full commitment.
- Get educated and learn the fundamentals of real estate flipping.
- Understand the math, including knowing how much to pay for the house, repair costs, and calculating profits.
- Research the market to identify profitable localities, as markets vary. For example, $100,000 for a house may be extremely cheap in one area and very expensive in another.
Tip: Understand the costs of houses in your area based on location, amenities, size, etc.
- Learn about repair or remodeling costs to determine if you can make a profit while flipping houses.
- To make money flipping houses, secure financing first. Various financing options are available for house flipping businesses, such as all-cash, bank financing, home equity loans, financial partners, or private money lenders.
Tip: Join real estate groups, REI clubs, and other media groups. Attend meetings, ask questions, participate in forums, and learn from experts.
- Now, look for a property to flip. Calculate if you can turn a profit after accounting for repairs.
- Begin networking with contractors for repair work, such as plumbing, flooring, electrical, painting, etc.
- Obtain the necessary licenses according to state regulations.
Tip: Acquiring permits has an added benefit. It allows you to access asking and selling prices and stay informed about new properties in the market.
Finding Homes for House Flipping
If you’re embarking on your first house flip, how do you find properties to flip? There are several methods to accomplish this.
- Utilize the MLS (Multiple Listing Service), a list created by real estate agents that displays properties for sale along with location details and other essential statistics.
Tip: Connect with a realtor to access information or become a licensed realtor yourself.
- Explore sites offering information on properties for sale in various areas.
- Join real estate groups and online forums for insights on house flipping.
- Attend private auctions and sales for potential house flipping opportunities.
(Image: Homebay.com)
- Check the classifieds in the daily newspaper.
- Connect with wholesalers or hire an agent.
Selecting a Strategy for Successful Home Flipping
There are various strategies to flip properties and generate profits. Here are some common ones as part of a guide to flipping houses:
#1. Rehab
- Purchase a property at a discounted price.
- Perform necessary repairs and renovations.
- Sell it to an interested buyer.
- Earn approximately $15,000 to $40,000 in such a deal.
Tip: Estimate rehab costs before purchasing the property.
#2. Wholesaling
If you prefer to avoid the hassles of rehab, consider the wholesaling strategy. This approach allows you to make money within a few weeks without requiring substantial capital. You can also save time by not needing to inspect houses after gaining experience.
- Make an offer for a property.
- Place it under a contract or assign it to the end buyer at around 70% of its current value after factoring in repair costs and your fee.
- You may need to provide a deposit but will recoup it as part of your assignment fee from the end buyer.
Tip: The advantage of wholesaling is that you don’t assume ownership of the property and are not part of the title chain.
#3. Birddogging
Considered the quickest and easiest method to initiate house flipping, birddogging requires zero investment.
- Build a database of real estate investors, property investors, or house flipping companies.
- This database provides leads on real estate buyers and sellers.
- Sell these leads for $20 to $100 each.
- You can even establish a subscription service, charging members a monthly fee to send leads on investors for a commission.
- You’re not involved in buying or selling properties, just generating leads.
Tip: Generate leads using local signs or the Internet. Place a free ad on kijiji.com or craigslist.com. Check online classifieds.
- Keep in mind that investors will typically earn more than lead suppliers.
House Flipping Tips for Maximum Profit
- When flipping houses for a living, aim to complete transactions quickly, preferably within a year.
Tip: Extending ownership of a property for an extended period leads to additional expenses like utilities, maintenance, taxes, etc., reducing profits.
- You can buy a property, make repairs, and sell it at a profit in the home flipping business.
- Alternatively, purchase a house in a growing area, make no repairs, and sell it at a higher price after a few months.
- Start small with a modest rehab budget in the home flipping business.
- Engage trustworthy construction and rehab teams for successful house flipping.
- Avoid over-improving or under-improving properties. Conduct research to identify upgrades that enhance property value.
- Factor in mortgage, utilities, maintenance costs while holding the property when calculating the ARV.
- Understand your potential buyer. Tailor property features to suit buyer demographics, such as families with children or retirees.
- Inform your buyer about property changes, repairs, structural updates, and smart home features to enhance value.
- If unable to sell a property, consider renting it out until a suitable buyer is found. Understand local rental rates.
Estimating Repairs
Stay within budget during property repairs to ensure a decent profit when flipping houses. Inaccurate estimates for roof, plumbing, flooring, fixtures, painting, HVAC systems, etc., can lead to failure in house flipping. Avoid overestimating or underestimating costs.
- Check costs at local rehab stores and note them down.
- Consult real estate experts to understand labor and contractor costs.
- Network with local services to find the best prices.
- Calculate by estimating average material costs for repairs and labor costs.
Tip: Utilize discounts, sales, compare prices across stores, and buy in bulk.
(Source: Lennoxhomebuyers.com)
How Much Money Can You Make Flipping a House?
Don’t be swayed by TV shows and commercials depicting hefty profits from flipping houses. While it’s possible, it’s not easy.
- Houses in higher price ranges can yield a 54% ROI.
- Real estate profit also varies by state. For example, flippers in Massachusetts outperformed those in California in 2013. Generally, houses in New York, New Jersey, Maryland, and Washington can offer substantial returns.
- Most house flippers allocate at least 20% of the purchase price for rehab, aiming for a profit of at least 30% on the purchase cost. Avoid overpricing, as an overpriced property may linger on the market without buyers.
- The number of houses you flip influences earnings. Amateurs may sell one or two houses annually due to repair time. With sufficient time, reliable systems, crews, and financing, you could flip 3 or 4 properties yearly.
Mistakes to Avoid in Business Flipping Houses
House flipping isn’t without challenges; otherwise, everyone would be doing it! Here are common pitfalls and how to steer clear of them.
- Fittings/Fixtures: Opt for aesthetic yet cost-effective fixtures. Avoid expensive materials that strain your budget without adding significant value to the house.
- Inspecting the House Before Closing: Look out for structural issues like roof problems that can incur substantial costs.
Tip: Roof repairs are costly, complex, and time-consuming.
- Research the Neighborhood: Assess the neighborhood’s desirability, as it can impact the selling price.
- Landscaping Expenses: Avoid lavish landscaping features that don’t significantly boost property value. Focus on visible improvements like lawn touch-ups or plant additions.
Tip: Opt for simple lawn enhancements rather than expensive landscaping.
- Avoid Overpricing: Set a competitive price based on comparable properties in the area. Overpriced houses discourage buyers and result in longer market stays, reducing profits.
Wrap Up
House flipping can be lucrative if done correctly, offering substantial returns in a short time. However, unexpected challenges can arise, such as hidden structural issues or unforeseen repairs, turning what seemed like a perfect deal into a nightmare.
Exercise caution, follow house flipping tips, and steer clear of common pitfalls in the industry. Purchase at the right price, secure necessary funds, estimate repair costs accurately, and set a practical selling price.
The beauty of house flipping is that you don’t need to quit your job to start a house flipping business. For real estate enthusiasts, you can maintain your job while earning a significant annual income.
While house flipping entails risks, with patience, learning industry tricks, and diving into the business prepared, you could find yourself reaping rewards in no time!