Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

A Beginner’s Guide To Flipping Real Estate

Written by JD Esajian

House flipping is currently the most popular method of real estate investing. As easy as it may look, however, there are many intricate steps that need to be followed accordingly. Failure to recognize even the most minute steps can result in problems. To that end, the worst thing you can do is dive right in without knowing what you are doing. If you are unsure of where to start, or just need a refresher course, the following is a beginner’s guide to flipping real estate:

1. Know The Numbers: Numbers are important in every area of the real estate business, but even ore so when it comes to house flipping. Before you do anything else, you need to understand all of the numbers involved in a deal. Of course, in doing so, a deal can become a little overwhelming at times. You need to know your purchase price range, closing costs, taxes, insurance, expenses and repair estimates. When it is time to sell, you commission numbers, days of the market, holding costs and after the estimated after repair value. Knowing each of these numbers and what they mean hold the key to success on every flip. Don’t do anything else until you are comfortable with all of them.

2. Get Financing In Order: How you plan on financing your purchase impacts everything else in the deal. Depending on where you are in the business, you may have the capital to simply pay cash for the property. If not, you may look to lender financing. You also have the option of using hard money or private money options. However you decide to finance, the deal depends on the specific property and the specifics of the flip. Everything you do hinges on the type of financing you use. Before you look at any properties, you need to have an idea of which type you will use, and any costs associated.

3. Pick A Market: Not every market is the same. There are different challenges with each specific area you buy in. When deciding on a property, it is important that you are comfortable with the area. You need to choose a location that has appeal, and can help you maximize the return. You also need to do your homework regarding average days on the market, purchase price ranges, and types of homes that are available. Getting a good deal on the buy side may mean you will have trouble when you decide to sell. The ideal market needs to have a good mix of affordability and constant demand. Hopefully you are going to put this house back on the market within 60-90 days. Often times, the area is much more important than the specific property. Take your time and choose an area that you are fully comfortable with.

4. Find Deals: Once you have an idea of what kind of properties you want and how you will finance them, you need to go find them. This can mean working with a local real estate agent or generating deals on your own. Whatever you decide, you should know that deals will not just fall into your lap. Even the best real estate agent with a history of bank-owned properties will not have an endless supply of listings. You need to commit to a marketing plan, or do something to keep leads coming in. You will probably look at half a dozen properties or more before you find one you want to make an offer on. The more properties that come your way, the better chance you will eventually find one you want to move forward on.

5. Assemble A Team: As you are looking for deals and making offers, you need to start assembling a team around you. The process of flipping requires you to be as efficient as possible. Ideally, you can have a general contractor act as your project manager, but this may not always be the case. In addition to a contractor, you need to find an electrician, painter, plumber, drywall specialist and various other handy people. Your team should be assembled and ready to go as soon as your deal is closed. Time equals money in house flipping; so you need to be ready to act fast.

6. Get Going: Once you take ownership and start your improvements, there will be many challenges. Nothing will ever go as smoothly as you think it will. There will be cost overages, delays and various other problems that will come up every day. Take them one step at a time and remember the big picture. The longer you wait to make an important decision, you are losing money. Running a flip is a lot like coaching a team. You need to know all of the different personalities and who you can push. Always keep things moving forward, and remember you are trying to make a profit.

7. List: The final piece to the flipping puzzle is listing the property. Where you list will often determine just how quickly it sells. One common mistake that is often made is thinking the property is worth more than it is. Even if you did a great job, it doesn’t mean it is worth more than other comparable homes in the area. Listen to your agent’s advice, and list at the right number. The quicker you can get your property sold, the faster you can move on to the next one.

Home flipping is something that anyone can do. This doesn’t mean that anyone can do it well. You need to be proficient in each of these areas, and probably even a few more. Once you feel comfortable with the process and what you need to do, jump right in and get going.