Flipping Houses: How To Get Started In 14 Steps

You may have watched one of the many television shows on buying and flipping houses, and wondered how to get into flipping houses yourself. Below you will find a comprehensive guide that will help you learn how to flip houses, including steps on getting started, top tips from professionals, and mistakes to avoid at all costs.

What Is House Flipping?

Flipping houses is when investors purchase a property and then sell it for a profit. There are generally two main strategies to buying and flipping houses: buy low and sell high, or buying a house and making significant repairs and renovations to it before reselling it. Flipping houses can be quite profitable, although at some risk, thus making flipping houses for a living a popular career choice within the real estate industry.

To reduce the period of time your capital is at risk, you will want to finish the sale as quickly as possible. In general, quickness should take precedence over maximum profit. This is due to the fact that each passing day costs you more money. You will have to pay for the mortgage, utilities, property taxes, insurance, etc. That’s the broad plan, albeit there are a few stumbling blocks.

Profit from flipping homes is usually earned through price appreciation as a result of a popular real estate market with fast-rising prices or from capital upgrades made to the property. An investor might buy a fixer-upper in a growing neighborhood, renovate it extensively, and then resell it at a price that reflects its new appearance and amenities.


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home flipping

What Is Microflipping?

It is possible to acquire and sell properties with only minor improvements. This is known as microflipping. Microflipping homes may be a viable alternative if you want to sell a property quickly but don’t want to renovate it. You’ll do this by analyzing data and identifying opportunities to purchase a home for less than market value and rapidly sell it to another buyer. These are usually residences that do not require extensive repairs.

The most crucial component of microflipping houses is how fast you can do it. Investors who microflip are successful because they handle a large number of transactions in a short period.

Pros Of Flipping Houses

  • Good Side Project Or Full-Time Job: Depending on how many house flipping projects you take on, you can make as much or as little as you like. While putting in more hours might result in higher profits, you don’t have to work any longer than you want to. Some people start home flipping as a part-time job and eventually move in full-time, while others do it on the side to supplement their income.

  • High ROI In Certain Areas: According to ATTOM Data Solutions, a typical house-flipping profit in the second quarter of 2019 was $62,700. A real estate agent can assist you in researching price increase estimates in order to choose communities and properties that will provide you with the highest return on investment.

  • Increase Neighborhood Property Value: Most of the residences a host flipper should acquire are in terrible condition or come from a troubled seller. Flipping houses might help turn around property values in neighborhoods where distressed residences are decreasing prices.

Cons Of Flipping Houses

  • Properties May Not Sell Right Away: As stated above, if the property you’re attempting to flip remains on the market, you’re liable for all of its expenses including the mortgage payments, financing, homeowners insurance, and property taxes. As a result, it is critical that you have some funds left aside in case your property is on the market for a while.

  • Homes Will Likely Have Several Issues: House flippers frequently have to invest a significant amount of money in repairing the properties they purchase in order to resell them for a profit later on. Furthermore, if unanticipated problems develop, you may be looking at a considerably more expensive remodeling.

  • Financial Risks: The unpredictability of flipping a house might result in financial loss. Also, if you don’t have the correct team, mentality, and discipline in place, it may be emotionally exhausting.

  • Legal Ramifications Are Possible: There’s always the possibility of a lawsuit if you sell a property with problems you didn’t fix or address properly or you purchase a property with a title that isn’t clear.

Before You Start Flipping Houses

The most important rule of home flipping is to keep your financial risk as low as possible while maximizing your potential return. Don’t overpay for a property and make sure you know to calculate the cost of repairs and renovations before you make a purchase.  

The 70 percent rule suggests that an investor should not spend more than 70% of a property’s after-repair value (ARV) minus any necessary repairs. The ARV is the value of a house once all repairs have been made.

For example, if the property’s ARV is $100,000 and it needs $20,000 in repairs, then the 70% rule suggests that you should pay no more than $50,000 for the property in question:

$100,000 (ARV) x 0.70 (70% Rule) = $70,000 – $20,000 (Cost of Repairs) = $50,000

House flipping requires planning, patience, skill, and most importantly, funding. However, you don’t need to break the bank to begin. There are several ways to flip houses with no money should you decide to start investing.

How To Find Houses To Flip

  • Look on foreclosure sites: If you are wondering how to find houses to flip, as well as how to find cheap houses to flip, one of the best starting points is to look on foreclosure listing sites, such as Foreclosures.com. Many banks and lenders also provide their own real estate owned listings. It should be noted that some of these listing sites require paid memberships.

  • Attend auctions: A great place to look for properties being sold at deep discounts is at probate and foreclosure auctions. However, be ready for bidding wars, where offering all-cash might be the most compelling bid. Check your local county’s website for scheduled property auctions.

  • Drive around: An orthodox method of finding your first fix and flip investment property is to hop in the car and drive around your target neighborhood. Look for signs of properties in distress, such boarded-up windows, overgrown yards, or piles of mail and newspapers. If you spot a property, write down the address and do some online research to find the owner or seller so that you can make an offer.

  • Join your local REI group: Joining your local real estate investment club or association is a great idea regardless of your investing niche. Networking with other real estate professionals could connect you with potential deals and partnerships. LinkedIn.com, online forums and local meet-ups are also great ways to connect with others.

  • Network with wholesalers: Wholesalers need house flippers like you in order for their business to be successful. Their sole focus is in finding undervalued properties and reselling it to a third party. House flippers can get a great wholesale price and resell the property for a retail price.

  • Work with an agent: You may want to consider adding a real estate agent to your team, especially if you lack experience or are unfamiliar with the real estate market. In addition, licensed real estate agents have access to the MLS (multiple listing service) which will allow you to locate undervalued properties more effectively.

Learn How To Flip Houses In 14 Steps

House flipping is an extremely complex process with multiple layers, from beginning to end, and it is only natural that anyone would want a clear-cut guide to flipping houses that will help them stay on track. Above you will find a flipping a house checklist that can help you make sure you’ve crossed off all the necessary to-do items during your first project. Also feel free to print out the ultimate house flipping checklist graphic below to keep in your back pocket:


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flipping houses

1. Check Your Credit Score

Before investors begin searching for funding, it is important to assess their current financial situation. It is not uncommon for lenders to run a credit check, but it is a good idea for investors to know where they stand ahead of time. Keep in mind that there are plenty of options for those with a low credit score, at this step it is simply important to know where you stand.

2. Determine Your Funding Source

Now is the time to start looking into ways to finance your deals. There are several options available including traditional financing, private lenders, crowdsourcing or even personal funding. Review each of the options available to you and compare interest rates and loan terms to make the best choice.

3. Select Your Market

The right market is crucial to the success of any house-flipping business. When choosing an area be sure to research the housing demand, median home prices, average property type and neighborhood resources.

4. Research Listings

After investors choose the right market, it is time to begin searching property listings. Websites like Zillow.com and Realtor.com are great places to start. Investors should also search public records and newspapers for foreclosure listings, which can represent profitable flips. To learn more about finding foreclosure properties, be sure to read this article.

5. Look For Successful Indicators

Investors should look at several key factors like location, property condition, and potential rehab costs when searching through property listings. Each of these factors will influence how much the flip will cost, and how much it could potentially earn once completed.

6. Conduct A Deal Analysis

There are several numbers investors can use to predict the potential of a given property. For example, the after rehab value (ARV) can help determine whether or not a deal will be profitable. To calculate the ARV, simply add the renovation value to the property purchase price.

7. Make An Offer

The offer price is crucial to the success of any rehab property. Securing the right purchase price will significantly influence the profits investors can make on a deal. That being said, investors hoping to secure a property will not want to undermine the existing sellers. Determine the right purchase price for your ARV and make a strong offer on the property.

8. Schedule A Property Inspection

By hiring a property inspector, investors can help make sure they are aware of any potential issues with a home. Inspectors will look for any structural issues, and point out and mechanical or electrical problems.

9. Interview Contractors

Finding the right team can take time as a real estate investor. Interview multiple contractors to get an accurate estimate of the repair costs and timeline required for your project. Do not be afraid to keep searching until you find the right contractor for the job.

10. Obtain Necessary Permits

More often than not, investors will need to obtain permits for a rehab property. Work with your head contractor to determine which permits you will need to obtain before the start of the project. Consult your state and local government websites for more information on how to file for permits.

11. Further Itemize Your Rehab Budget

Once you have a list of the projects necessary to complete the renovation, review the estimated costs of the flip. This will help you identify any areas that need to be prioritized or changed before the renovation starts.

12. Create A Project Timeline And Schedule

Work with your contractor to finalize a timeline and schedule for the renovation. Always leave extra room in the final estimate in case any unexpected issues arise, like materials shipping late or a project taking extra time.

13. Pass The Final Inspection

After completing the renovation project, the house will need to be inspected again to ensure the changes are up to code. Do a final walk-through with your contractor as the project draws to a close to make sure you did not miss anything.

14. Re-list And Sell Your Newly Renovated Property

The final step in the house flipping process will be to list and sell the renovated property. Decide whether or not to work with an agent and determine how to best market the property. Congratulations, you just completed a house flipping project.

house flipping

3 Books On Flipping Houses For Beginners

  • The Real Estate Rehab Investing Bible: A Proven-Profit System for Finding, Funding, Fixing, and Flipping Houses…Without Lifting a Paintbrush” by Paul Esajian

  • Flip: How to Find, Fix, and Sell Houses for Profit” by Rick Villani and Clay Davis

  • Flip: An Unconventional Guide to Becoming a Real Estate Entrepreneur and Building Your Dream Lifestyle” by Nick Ruiz

Being a successful entrepreneur is synonymous with continuously educating yourself, and starting a house-flipping business is no different. Luckily, there are plenty of books on flipping houses available, written by some industry heavyweights.

“The Real Estate Rehab Investing Bible” by FortuneBuilders co-founder Paul Esajian is a great resource on flipping houses for beginners, as it explains a proven seven-stage system that can be implemented by those with no experience or no capital. Rick Villani and Clay Davis’ “Flip” provides a step-by-step deal analysis process that allows beginners to identify good investments, as well as learn how to pick out the best improvements to make. “Flip” by Nick Ruiz is provides the lens of becoming an entrepreneur in the real estate industry.

Summary

Flipping houses  can be a lucrative real estate investing strategy when done correctly. Use our step-by-step guide as you choose a location, find a property and begin planning your renovation to make sure nothing falls through the cracks. Learning how to flip a house takes time and effort, but the benefits can make the process well worth the work.


Ready to get started flipping houses in your local market?

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