What is House Flipping?
House flipping is a term that is used in real estate investing. It refers to the act of buying a house and selling it quickly at a profit after renovation.
The success of house flipping is dependent upon the ability of the investor to spot a house that is available at less than its fair market value.
House flipping, even though it involves a lot of profit, is considered a risky method of investing. It has been popularized among the masses with the help of realty TV show like Flip or Flop.
More and more investors are taking this route of real estate investment in the desire to earn high returns on investment.
How to get started flipping houses?
Flipping a house and earning profits is not easy but you can make flipping successful by developing a team of professionals to overcome hurdles.
Once you have this team comprising vendors, contractors, investors, and appraisers, it becomes easy for you to spot homes at less than their market value.
After buying a house, it depends upon your skills to repair it quickly with minimum of expenditure to book your profits. This is where your team of contractors and vendors comes handy for you.
Also, always keep your finances ready when you are trying to earn profits through house flipping.
Flipping houses for a living
House flipping is such an alluring concept that more and more investors are turning to this method of real estate investing.
It is possible for an investor to use flipping to earn a living. However, to make sure that all stages of flipping are completed smoothly, the investor needs to make sure that everything from buying and repairing to finally selling a home gets completed within a planned schedule.
He also needs to do his homework properly in terms of knowledge of housing market to realize the objective of selling the house for a profit.
How to become a house flipper with no money
House flipping requires an investor to purchase a house at less than its fair market value.
Obviously, you need to arrange the down payment to put forward to a lender so that he finances the rest of the amount for the purchase of the house.
However, if you want to carry out flipping entirely with other people’s money, it is very much possible if you are ready to use private lender’s money or hard money loans. Of course, you must do your math well so that you are able to make a profit through flipping when the rate of interest charged from you is high.
There are also companies that provide 90% of the value of the property and 100% of the rehab cost to those who have excellent flipping skills.
Do you need a license to flip houses?
There are no restrictions on house flipping and anyone can hope to earn profits from this method of real estate investing. In fact, most investors involved with flipping are neither realtor not contractors.
There are some states where you need to register your business of flipping like that of a contractor. Some states also need you to get a selling license to be able to sell the house after its renovation.
The short answer to the question, “Do you need a license to flip a house?” is No.
What is the 70% Rule in House Flipping?
Sensing the risky nature of house flipping, experts have made a 70% rule in this method of real estate investing.
This rule serves as a guide for aspiring investors and helps them in avoiding overspending which is the major cause of loss in house flipping.
The rule says that an investor should pay only 70% of the ARV of the property. Here, ARV refers to after repair value.
This means an investor should pay only $700000 for buying a property that he intends to sell for $100000 after repairs.
ARV is the value of the property after it has been repaired and renovated. Spending more than 70% of ARV is not advisable for investors.
How to flip houses for beginners?
Though the concept of house flipping is easy, a vast majority of investors fail in this method of real estate investing.
It is therefore important to understand the steps involved in the process of house flipping.
1. Set your money goals for your house flipping business
Flipping is successful when you know your financial limits when buying a house and later when renovating it. You cannot spend lots of money on a house if you are aware of the pricing trends in the market where you have purchased the house.
Set your money goals and never exceed them when flipping a house.
2. Build Your Team
Find and create relationships with professionals like: Contractors, Realtors, Electricians, Plumbers, Inspectors, Handymen, etc
Earning desired profits from flipping is not possible unless you have a team of experienced and skilled professionals like contractors, brokers, appraisers, and realtors.
Not only do you need help when buying as house but also during its renovation to make it attractive and desirable for potential buyers.
It is when all the steps of the process get completed smoothly in a hassle-free manner that you can hope to earn desired returns on investment.
3. Establish your price range for a property to buy
You should study the housing market in which you spot a property that you can fix and flip.
You should try to buy a property that you can sell easily after renovation. If the asking price after renovation is high, you may not get the desired response from the buyers in the market.
This is the reason you should set a price range within which you need to buy a house for the purpose of flipping.
4. Know your profit before you buy the property
The beauty of house flipping lies in the fat that you can know the profit from a flipping exercise even before starting it. It depends upon your skills in correctly estimating the price of the property after repairs.
For example, if you spot a house that you believe you can sell quickly and easily for $100000 after repairs, you should try to purchase it for 70% of this ARV which is $70000.
This means you know your profit even before you have started the renovation of the house.
5. Purchase the property for 70% of the After-Repair Value
To be successful in your flipping exercise, it is important to not overspend during purchase and renovation.
Remember the 70% rule in house flipping that says you should not pay more than 70% of the ARV if you want to make desired profits from flipping.
Paying more than 70% of the ARV or overspending during the renovation phase decreases your profits from flipping as it forces you to set the asking price higher.
6. Fix up the property with others doing the work or you can DIY the property you are flipping
As an investor, you can always arrange a team of professionals to do all the leg work for you.
In fact, you know you must rely on the skills and experience of your contractor to make the house attractive and desirable for potential buyers.
However, you can also take up some of the renovation work as a DIY project if you have the skills.
This helps in getting the work done in a quicker and smoother fashion and also helps in saving your hard-earned money.
7. Stage the property with furniture after the work is done
Even ordinary homeowners take help of professional stagers to sell their homes quickly. You have renovated the house that you purchased for flipping.
If you think conditions are not conducive in the housing market, you can stage the property with rented furniture to create a nice impression on your visitors.
Of course, staging costs money but it helps in selling the house quickly which is what you want to get the profits from your investment.
8. List the property for sale with a realtor
Once you have carried out the renovations and transformed the looks of the house, it is time to sell it quickly to get your profits from the exercise.
You should enlist services of a local, experienced realtor if you want to sell the house at a desired asking price quickly and smoothly.
Of course, the realtor would charge his fee, but he will make sure that you find the buyer and get the money in your account as quickly as possible.
9. Make a profit when you sell the property
Profit in a flipping exercise is realized only when the house gets sold at the desired asking price. This is the last but very important step in the house flipping process.
The longer it takes for you to sell the house, the more your expenses on holding and maintaining the house.
This is why it is necessary to sell the house as soon as repair work is completed, and the house is ready for sale.
10. Use the profits to continue to buy more properties and build your business
The best way to earn more profits form house flipping is to invest your profit form flipping into buying more properties.
This helps in building your business and you can flip many more houses to multiply the profits.
Why house flipping is a bad idea?
There are many experts who say that house flipping is a bad idea.
Here are the things that can be a negatgive to house flipping:
- Long time frame to lock up your money in one house to flip
- Dependent on market appreciation
- Unknown issues with the house
- Title complications
- There is also the risk of losing your capital
- A lot of work needed to get top dollar
- You are not actually investing in real estate
However, thousands of investors are earning decent money from house flipping.
You can potentially make $100,000 or more when you flip a good property and make it nice for the buyers.
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