The United States boasts one of the most vibrant real estate markets in the world, currently worth a staggering $202.6 billion. Most people are eager to venture into real estate but get discouraged by the sheer amount of capital needed.
However, you don’t need to break the bank to kick start your real estate venture. Ventures like house flipping require little capital investment but boast incredible returns. All you have to do is know how to flip a house, get a little funding, and you’ll be laughing all the way to the bank.
Flipping houses can be a very profitable venture, but it is not without risk. If you are looking to get into flipping houses, then this guide is for you. We’re discussing everything you need to know about flipping houses, from finding a property to closing the deal.
What Is House Flipping?
Flipping houses has become a popular way to make money in the real estate market. The basic idea is simple: buy a property, make some renovations, and then sell it at a higher price.
Of course, there’s much more to it than that. House flippers must have a good eye for properties that have the potential to be turned into a profit. They also need to be able to work with a limited budget and timeline. But if done correctly, house flipping can be a very profitable venture.
In addition to making money off of the sale, house flippers also get the satisfaction of knowing they helped to improve a property and made it more valuable for the new owner. Everybody wins with house flipping.
How to Flip a House
Now that you know what flipping houses involves, let’s now look at how you can turn huge profits by flipping houses. Follow the below steps to make a killing flipping houses.
Research an Ideal Real Estate Market
First things first, you’ll want to take a deep dive into potential housing markets to invest in.
You’ll want to find a market that is growing and has the potential for continued growth. This will ensure that there are plenty of buyers looking for properties in the area, driving up prices (and your profits).
It’s a good idea to start with low-cost markets and leave the pricier ones for later. That way, you’ll be able to get more bang for your buck when it comes to renovating properties. Once you’ve found a market that meets these criteria, it’s time to start looking for properties!
Create a House Flipping Business Plan
Next, you’ll want to create a house flipping business plan that’ll map out your house flipping venture.
This business plan will include your goals, strategies, a budget, and more. Having a solid business plan is critical for any business venture, and house flipping is no different. If you want to turn an actual profit from flipping houses, pay particular attention to your budget.
When crafting your budget, decide how much you want to invest and how much you’ll hold as a reserve. You’ll need to have enough money to reimburse the lender while you’re waiting for a buyer.
Creating a business plan may seem like a daunting task, but there are plenty of resources out there to help you get started. You can download a business plan template online and use it as a framework for your own.
Find Financing for Your House Flipping Venture
With a solid business plan in place, now you have to get money to flip a house. As mentioned earlier, flipping houses is one of the most affordable ways to venture into real estate. However, pulling off a proper house flip requires a considerable amount of investment.
Thankfully, there are plenty of ways to finance your house-flipping venture. Some ways to finance your house flipping include home equity, cash-out refinance, and hard money loans.
Hard money loans are arguably the best way to finance your house flipping because they have fewer stringent requirements and you can get your money instantly.
If you do your digging, you can find hard money lenders that offer 100% hard money financing for your house flipping. Find a suitable financing option to finance your venture, then you can move to the next step.
Build Relationships With Contractors
The premise of flipping houses is finding run-down properties and fixing them up to sell for a property. As such, you need to find reputable contractors to help you “flip” the houses.
A great way to find contractors is by networking with other house flippers in your area. They’ll be able to point you in the direction of great electricians, plumbers, carpenters, and more. Once you have a solid list of contractors, start building relationships with them.
The better your relationship is with these contractors, the more work they’ll be willing to do for you and at a lower cost.
Find a House Worthy of Flipping
You should be able to scope out a house worthy of flipping in the real estate market you set your sights on.
The key things you’ll want to look for are foreclosures, short sales, and MLS listings. These are all great sources of houses that you can buy at a low cost and flip for a higher price.
When looking at properties, always be sure to factor in the cost of repairs, holding costs, and your desired profit margin. This will help you avoid properties that are simply not worth your time or money.
Negotiate the Purchase Price and Buy the House
Once you’ve found a house that meets your criteria, it’s time to start negotiating the purchase price. Remember, the goal is to buy low and sell high. As such, you’ll want to try to get the purchase price as low as possible.
If you’re having trouble negotiating on your own, consider hiring a real estate agent to do your bidding. They’ll leverage their extensive knowledge and negotiating expertise to help you get the best price possible on the property.
Once you’ve agreed on a purchase price, it’s time to buy a house to flip! Be sure to have all your financing in place before doing so. Once you own the property, it’s time to start repairing and flipping it!
Renovate the Property
Once you seal the deal, it’s now time to roll up your sleeves and get to work. For the seventh step, you’ll have to renovate the property, sometimes completely.
This is where your business plan comes in handy. Use it as a guide to help you determine how much money to spend on repairs and renovations. Use your business plan and budget as a road map to start making the necessary repairs and improvements.
Liaise with contractors to complete the work efficiently and as fast as possible. For small projects, you may be able to do some of the work yourself to save money. Once the repairs are completed, the final step is to stage and sell the property!
Stage and Sell the Property
The eighth and final step is to stage and sell the property. This is where you’ll really need the help of a real estate agent.
The real estate agent will help you list the property, market it, and show it to potential buyers. Of course, you can always do it by yourself, but finding a suitable buyer will be more difficult. You’re better off spending a little money on hiring a real estate agent to make finding a buyer a breeze.
Once you have a good offer, all that’s left to do is to close the deal and pocket your profits! Flipping houses can be a great way to make money in the real estate market without investing a lot of initial capital.
How Much Money Can You Make Flipping Houses?
You’re absolutely wrong if you think that flipping houses is some get-rich-quick scheme to make money out of thin air.
Far from that, it takes a lot of hard work, commitment, and smart moves to make money flipping houses. If done correctly, house flipping can be a great way to generate income in the real estate market.
The amount of money you can make from flipping houses depends on a number of factors, including:
- The location of the property
- The condition of the property
- The scope of work needed
- Your margin
- The selling price
Generally speaking, you can expect to make anywhere from $20,000 to $50,000 on a flip, which is an average return of 32.3%. Of course, there are always exceptions to this rule. Some flips may only net you a few thousand dollars, while others could make you over $100,000.
It’s important to remember that the goal of flipping houses is to generate a profit. As such, you’ll need to be smart about the properties you choose to flip and how much you’re willing to spend on repairs and renovations.
Risks Involved in House Flipping
As mentioned earlier, house flipping does involve some degree of risk, which makes it all the more important to tread carefully with it. That said, here are some common risks involved with flipping houses.
Excessive Hidden Costs
In some cases, houses that appear to be a great deal on the surface end up having hidden costs that eat into your profits.
These hidden costs can include:
- Asbestos removal
- Foundation repairs
- Plumbing repairs/replacements
- Electrical work
Be sure to do your due diligence and have a professional inspector go through the property before you buy it. This will help you to uncover any hidden costs that may lower your profits.
Improper House Valuation
An improper house valuation is when you overestimate or underestimate how much a property is actually worth. This can obviously eat into your profits if you’re not careful.
To avoid this, be sure to consult with a professional real estate agent who knows the market well. They’ll be able to help you come up with an accurate estimate of how much the property is actually worth.
Alternatively, you can hire a home appraiser to get an accurate estimate of the home’s worth.
Hiring the Wrong Contractor
Hiring the wrong contractor for the renovation results in a lot of money down the drain. Not only will you have to pay them for their subpar work, but you’ll also need to hire someone else to come in and fix the mistakes.
To sidestep this, be sure to do your research on any potential contractors. Read reviews, get recommendations from friends, and look at their previous work to ensure that they’re the right fit for the job.
Stress and Uncertainty
House flipping can be a very stressful process, especially if it’s your first time doing it. There’ll always be some uncertainty involved, which can make the process even more stressful.
One way to combat this stress is to remember that you’re not alone in this process. There are plenty of resources available to help you, including books, websites, and even house flipping courses. Utilize these resources to help reduce stress and uncertainty.
Also, ensure you create a concrete business plan to steer your house flipping venture. The worst thing you can do is jump into a house flipping blindly without doing your due diligence. Remember, just because you renovate an old house doesn’t mean buyers will come flocking.
Stay patient and list the home on the right platforms, and you’ll land a suitable buyer sooner or later. If you’re having trouble doing so, turn to your real estate agent.
Make a Killing Flipping Houses
Now that you know how to flip a house, our work here is done. It’s now up to you to find suitable properties and flip them for some serious cash. We highly recommend getting help from a qualified real estate agent to guide you through the entire process. Connect with other house flippers and learn a thing or two from their experiences. Lastly, don’t forget to check out the other posts on the site for more informative reads.