Flipping houses is a long and arduous process that involves a lot of knowledge, skill, and endurance as well as having sufficient funds either through fix and flip loans or your own money. Either way, if you know what you’re doing, fixing and flipping could be a rewarding real estate investment. This article contains all the information you need to successfully flip a house.
What Exactly Is House Flipping?
House flippers are real estate speculators who purchase properties at a bargain, then resell them after making repairs and improvements and pocketing the difference. Buying at a low price and selling at a higher price is the basic tenet of the house-flipping business model.
When the market has more buyers than sellers, as is the case in many areas right now, real estate flipping can be a profitable venture.
Most buyers don’t have the resources to undertake their home inspections and repairs, and they often lack the time and expertise to shop around for the best bargains. On the other hand, they could be prepared to pay top dollar for a turnkey house.
House flipping differs somewhat from purchasing a turnkey rental property. To acquire at a discount, make repairs in a reasonable amount of time, and sell at a profit, you need to be aware of market trends.
If you want to make a profit flipping houses, you need to follow these five steps:
It’s far simpler to talk about buying cheap and selling expensive than to execute it. If you want to earn money flipping houses, you need to choose one with adequate potential profit once repairs have been made.
For example, houses in middle-class neighborhoods are usually ideal for fix and flip investments.
Calculate the Expenses
Successful house flippers target properties in need of minor renovations, for example, paint, flooring, new sinks and faucets, and new stainless steel appliances. These repairs are simpler to estimate than structural issues like a damaged wall or foundation, which need a qualified general contractor and local permits.
Professional house flippers often adhere to the 70% rule when determining their maximum bid on a property. To determine whether a bargain makes sense, you’ll need to know repair costs and after-repair value. Then, you may calculate the highest bid for a home flip using the following formula:
The maximum bid equals the after-repair value (ARV) minus the cost of repair. For example, If the ARV of a house you’re looking to flip is $150,000 and the cost of repairs is $15,000, then the maximum offer price would be $90,000.
Create a Funding Plan
Using either immediate cash on hand or short-term, high-interest hard money loans are smart ways to finance a property flip. Leverage is often used by buy-and-hold investors to boost their return on investment.
House flippers strive to move swiftly and avoid debt or interest payments that might slice into earnings. In addition, most traditional lenders won’t finance a flip because of the higher risk involved.
Connect With Vendors
Contractors, handymen, and material suppliers will offer you better prices if you provide them with regular business. By developing a network of reliable and cost-effective contractors, you’ll cut repair costs.
One of the worst possible outcomes of a house flip is for the purchase price and repair costs to surpass the property’s fair market worth. No real estate investor wants to be in a position where they must sell a property at a loss just to break even.
Purchase a House
Putting a home under contract is the next step after you have done research on the local real estate market and identified a property with the potential for a quick profit. Because you’re offering below-market, sellers will want a purchase contract with minimal conditions and a rapid escrow closure.
The sooner you have the renovations done and the sooner you can sell the house for a profit, so have your team of contractors ready to start working the day escrow closes.
Consider the worst case scenario and always err on the side of caution if you’re considering getting into house flipping. To ease into the process, invest in a property that requires simple cosmetic work and is located in a market you are familiar with.
Your ability to attract investors willing to finance your house flipping venture will be greatly enhanced even if your first flip yields just a little return.