How to Flip a House – Beginners Guide to Flipping Houses

House flipping is one of the commonly used real estate investing strategies. The investor buys a house to sell it for profit. It can be done in two ways – buy a house and do the necessary repair and upgrade to sell the house at a higher price, or buy a property in a market with rising home values, hold it for a couple of months, and resell once the price becomes favorable. Between the two, the one that involves repair and upgrade is the commonly used flipping method. If you are going to learn how to flip a house there are some things you need to know first.

Is flipping houses a bad idea?

While flipping a house offers many advantages, it does have some cons too. These include the following:

• You could lose money – Just like any other investment type, you could lose money in flipping houses. Fortunately, you can minimize the loss by employing some tested and proven effective investing strategies such as knowing and understanding the real estate market, have a plan, and sticking to your budget.

• You might need a huge capital – You probably have heard stories of successful house flippers who started their first flip with little to no money down. The truth is you will still need capital, one way or another, and most of the time, the money involved is enormous because you need to buy a property, do the necessary repair, and hold onto the property for a while.

• It is time-consuming – Flipping a house requires time. You are indeed the boss of your business, and you can work at your comfort, still flipping is a time-consuming process. It can be very demanding of your time, especially if the property needs a lot of improvement.

• Stress and anxiety – Flippers have a well-laid plan (execution and budget), but, inevitably, some things don’t go as planned, and it could make you anxious, especially if the expenses go out of hand. The highs and lows of house flipping can cause stress, and if you can’t handle a highly stressful environment, you will most likely fail.

• Physical and manual labor – Flipping a house can be physically exhausting, especially if you are going to handle the manual and physical labor by yourself. What some flippers do is they subcontract the manual work, which is in a way right, but cut a significant chunk on their profit. To keep your profit high, you have to do some of the work, but let the professional handle technical stuff such as the electrical system and HVAC. That way, you can still keep your profit without compromising the quality of the project.

• High tax bills – House flipping is a short-term investment, and you are taxed at a short-term capital gains rate – higher tax than the long-term rate.

What is the 70% rule in house flipping?

A 70% rule is used in finding out the maximum price you have to pay for a property. You should spend not more than 70% of the ARV (after repair value), which is the estimated value of the property after doing all the necessary repair. The intention is to cop out 30% to leave room for profit and miscellaneous expenses. By using the 70% rule, you can quickly evaluate if a potential deal is in the right ballpark. It is a basic framework to use when evaluating prospective deals, although it shouldn’t be alone the basis when making offers.

The after repair value and repair cost are the hearts of a house flipping deal, and those are emphasized in the 70% rule. When these two numbers are accurately calculated, you will be less likely to lose money on a deal. However, if you make mistakes in calculating the ARV and repair cost, you will most likely lose money. So, when evaluating a deal, you have to be very careful with the numbers as a single mistake can cost you much money.

Is it better to flip or rent?

Choosing between flipping and renting is a tough decision as both lets you make a decent amount of money. The difference between flipping and renting is that flipping needs active management. You don’t necessarily need to do all the jobs on your own, but you will need to manage it and oversee and participate actively. Apart from being an investor, you are also running a business, and how much you make depends on the number of flips. On the other hand, rental property lets you earn passive income from the monthly rental fee. When you own a rental property, you do the work once and receives a regular cash flow. The income from property rental is ongoing until the property becomes vacant. So, your salary is dependent on your tenants.

What is the salary of a house flipper?

The salary of a house flipper is dependent on many factors like:

• Your ability to purchase a property at a discounted price.
• Adherence to the pre-set budget for rehab and repair.
• The number of successful flipping project.
• The popularity of flipping in your area.

An experienced house flipper doing full-time house flipping job flips an average of 20 houses per year and even more, especially if you already establish your reputation in the industry. You can make a massive amount of money if you are going to make a house flipping a serious job because it is not only a business; it is also a job.

How long does a house flip take?

There is no definite timeframe as it varies from project to project. To give you an idea as to how long will it take to flip a house, read the following:

• Searching and buying a property – It usually takes 7 to 10 days if you buy through the traditional method. If you buy through a realtor or auction, expect the timeframe to be extended for a few days or weeks. There are times when the purchasing of property alone may take some months.

• Renovation and upgrade – Depending on the type of renovation the property needs, it could take around 30 to 90 days. For the repair to be done quickly, it would help if you have an organized crew ready. Planning is a must as it gives you control over the turnaround time and profit.

• Selling the property – Now that you’re done with the renovation and upgrade, the next time-consuming process is selling the property. On average, it would take 45 days to six months before you can find a buyer. The way you advertise the property and your social networks can significantly affect the selling timeframe. Some properties sell in just a few days, while others take some time.

Can you make a living flipping houses?

The answer is a straightforward YES. Many real estate investors successfully make a living flipping houses, and some of them you probably had seen in infomercials and reality TV shows. While flipping is presented as something that can be easily done, the truth is that it is not as easy as it seems. There are challenges and roadblocks along the way, especially if you are just a newbie, but as you build your house flipping career, broaden your network, and master how the house flipping business works, you will start earning a considerable amount of money. Just keep in mind that success does not happen overnight. It is a result of hard work, passion, and determination.

Is house flipping a good career?

House flipping is one of the financially-rewarding careers, especially if you do it full-time. However, the road to success is not easy. There are roadblocks along the way, especially if you are just starting in the business. If you want to make it a full-time career, make sure you take the time to know and understand how house flipping business works. Invest in your knowledge. Start small and gradually work your way to the top. There is no shortcut to success in house flipping. It’s the baby steps and small profit that will lead you to more significant opportunities.

Can you get rich from flipping houses?

Yes. Many real estate investors become rich doing house flips. However, the road to success is not as easy as you would picture it to be. Infomercials and house-flipping reality TV shows present house flipping as something that can be easily done, but in reality, it is not. Apart from having the time and money, you need to have the expertise, which cannot be done overnight. It is a product of sleepless nights, hard work, and dedication. If you want to get rich from flipping houses, you have to do the job. There is no shortcut. Even professional house flippers earning millions of dollars a year started from scratch. As long as you are willing to learn and do all the necessary work, you can get rich from house flipping.

Is house flipping worth it?

There are many real estate investing strategies to choose from, but house flipping remains favorite for one reason – it is worth your time, money, and energy. Many investors were able to make hundreds of thousands to millions every year by merely doing house flips. A professional house flipper flips at least 20 to 30 houses every year. Some specialize in luxury real estate flipping; wherein a single deal can earn hundreds of thousands in profit. However, you have to be very careful as there are people who lost their money from flipping. Like any other investment strategy, there are risks involved, and you have to weigh the pros and cons before putting all your hard-earned money. If you are a beginner, do not immediately jump on a massive project to make a significant profit. Start small, learn how the house flipping industry works, invest in your knowledge and tools, and go big only if you are ready.

Do I need a license to flip homes?

Obtaining a license is not mandatory when flipping a house. It does not make sense to get a license if you plan on flipping a single property, pocket the money, and move on. All you have to do is to partner with someone who has the experience in flipping (real estate agent) to help you navigate through the entire process. However, if you want to be a full-time house flipper, having a license can benefit you in many ways. These include the following:

• Bypass agent commissions – When you set out to sell your flipped home, you would usually need a real estate agent, and about 5% of the sale price goes to the agent as a commission fee. If you have the license, you can bypass this process and put the commission fee in your pocket.

• Understand the rules and regulations of real estate – Flipping a house means adhering to a particular state’s real estate laws and regulations. Any violations can subject you to liability, which could affect not only your income but also your reputation as a flipper.

• Access to multiple listing service (MLS) – It is a series of private regional property databases, and you must be a licensed real estate agent to access it. The competition is stiff in the hot real estate market, and having access to MLS can be a big help because you’ll know about available properties as soon as they hit the market.

• Connections with high-quality contractors – If you have the license, your network will eventually grow big. You will meet people who can help you with your flipping projects and gain recommendations for contractors and building professionals. It will make your flipping job less complicated.

• Gain the trust of potential buyers – The majority of homebuyers buy their home through a real estate agent. They rely more on the real estate agent than online sources. If you want to win the trust of potential buyers, then you should consider obtaining a license.

How to flip a house if you are a beginner

Flipping a house can be very challenging, especially for beginners. Here is the guide for house flipping newbies:

• Assess your capital – It is a must to have the financial resources and know how much money you can invest. If you don’t have sufficient money, do not lose hope as there are other ways to fund your house flipping project – borrowing money from the bank and private money lenders, partnering with someone who can provide enough capital (joint venture), you need to find out which one works best for you.

• Build a house flipping team – It is a big help to have a house flipping team as they can make the tough work less daunting and taxing. Your team will be a massive help in finding, fixing, and selling a property. Remember that hard things become easier when you are not doing it all alone.

• Search for the best property to flip – The main goal is to find a property at a low price. However, you also need to consider the condition and location of the house, which makes the entire process all the more challenging. As a beginner, you have to search for a property that requires less fixing, and such property must be located in a geographic area appealing to your target market. It is a time-consuming and energy-draining process for beginners, but you eventually get the hang of it.

• Do the math – You can easily evaluate if the house is worth flipping by doing simple math. You have to find the potential selling price of the home or the after repair value (ARV) once everything is fixed up. Subtract the purchase price, cost of repair, and monthly carrying cost. The difference will be your profit.

• Manage the rehab – it is where all the action takes the price. For beginners, the task is delegated to the contractor, especially if the rehab is extensive. However, it would help a lot if you are personally supervising the work to ensure that everything is being carried out correctly and on budget.

• Work fast without compromising quality – Time is money, which is especially true in the real estate business. Flipping a house is a race against the clock because you will make less profit if the rehab takes longer or if the property sits on the market for quite some time. You’ll have to handle the utilities, insurance payment, financing fee, and town taxes – all these can add up and can eat a significant chunk on your profit. So, when flipping a house, do it fast but do it well. The ideal timeframe is within six months from the time of purchase.

How much money do you need to start flipping houses?

It takes money to make money, and this is true when flipping houses. How much money do you need when flipping and rehabbing a home? Well, it depends on your negotiation skills – negotiate the price and where you are going to get the money. Keep in mind that you don’t only need money to buy a home, but you also need more money to handle the repair and make the dilapidated property incredible again.

To figure out how much money you need, you need to consider the following areas:

• Cost to buy a home
• Cost to do repairs
• Holding cost
• Selling cost

A house in a bad shape requires extensive repair, which will cost you much money. It needs not only cosmetic touch-ups but also structural repair, not to mention plumbing and HVAC systems. Once the necessary repair is done, the next thing that will add a huge chunk in your budget is the closing cost, which consists of transfer taxes, property taxes, insurance, title company fee, and title insurance. For a simple house flipping project, you would need around $100,000.

Can I flip a house with $10,000?

With as little as $10,000, you can flip a house. However, you have to keep in mind that with such amount, you don’t have much wiggle room for renovation and other related expenses. You have to do thorough research to find a property that fits your budget. It does take a lot of work and research, but is it doable? The answer is yes.

What can I buy for $10,000?

You might be wondering what kind of property you can buy for $10,000? The question is not what you can buy, but where you can buy. Timing is also essential. When looking for a property within your $10,000 budget, consider searching in the following areas:

• Consider purchasing a property in war zones – It may sound absurd, but with some creativity and resourcefulness, you can turn the home back to its glory. It may have some maintenance issues which will require additional expense on your end, but you will undoubtedly make a huge profit.

• Property with tax liens – Your house can get foreclosed if you don’t pay property taxes for a couple of years. What real estate investors usually do is buy the lien; if the owner pays the lien, the investor can get the money back plus the interest. If the owner doesn’t repay the lien after a year, the property will be yours.

• Check HUD homes for sale – Regularly check HUD for homes for sale, which you can get at an affordable price. However, the $10,000 budget can only be used as a down payment, and you would get money from other sources to fund the total purchase price. You can borrow money from the bank or get a private loan. Keep in mind that there is a fair amount of paperwork and technical paperwork when buying a foreclosed property.

• Check the eviction list – By going to eviction court, you will meet property owners who are motivated sellers too. They are more than willing to dispose of the property at a discounted price.

• Partner with other investors – With a $10,000 capital, you can partner with other house flippers, and together you can go big with your project. It really boils down to finding people you can trust and equally splitting the profit once the property is sold.

How do you find houses to flip?

Finding a house to flip can be quite challenging, especially nowadays, when many people are into a house-flipping business. Fortunately, there are places where you can find the ideal properties to flip regardless of your budget. These include the following:

• Multiple Listing Service (MLS) – It is a database of property for sale within a specific geographic area and is only available to licensed realtors. The access to such listings has a corresponding fee. Having access to multiple listing service offers advantages such as:

o The majority of properties for sale in a particular area are listed in MLS.
o The listing contains valuable information that will enable you to make informed decisions.
o Houses sell faster through MLS than sold directly by the owner.

• Real Estate Investment Group – Joining real estate investment groups can help you find properties that best fit your interest and budget. More so, it also provides a wealth of information on various investment opportunities in the real estate industry.

• Search for auctions – It is a perfect opportunity for you to find a property to flip at a discounted price. Estate and foreclosure auctions are ideal for investors who can pay cash. Review the list as it is usually listed a few weeks in advance. Be careful with the bidding war and stick with your pre-auction property analysis as much as possible.

Flipping houses can be your ticket to financial-independence provided you know what you are doing. It takes knowledge, skills, hard work, and commitment to be a successful house flipper. House flipping is not for the faint of heart. It is for people who have strong attention to detail and are willing to invest in their knowledge. There is no shortcut. Even the most successful house flippers you see on infomercials and television reality shows started from the bottom and worked their way to success.