House flipping is becoming a popular trend in the modern real estate industry. The trend is attracting investors in huge numbers. Maybe you are thinking of joining the trade but still unsure on how to start flipping houses. If so, read on to learn everything you want to know about house flipping and how to get started.
There are varied definitions of flipping homes. However, it simply refers to an investment strategy where a real estate investor buys a property at a discount and improves it for sale at a higher price later. Flipping houses is a strategy for making quicker profits as opposed to buying, holding, & renting. Profits can be quite lucrative if the conditions in the real estate market are favorable.
House flippers often prefer buying homes that are old and distressed because such properties are easy to acquire at fairly cheaper prices, such as foreclosures or short sales. Thus, they present higher chances for investors to make a higher profit from their sales. Depending on the circumstances in play, flippers can do the improvements independently or use contractors.
Yes, flipping houses is legal. There are legal implications to flipping houses, but if you abide by these legalities, then you will be fine. If a successful house flip entails selling the property at a fair retail price and done according to your state's or county's laws, then there is nothing illegal about it.
On the other hand, falsifying mortgage documents and issuing bribes to appraisers for a successful flip is illegal. The key legal risks of house flipping that you should be concerned about include FHA Re-selling restrictions, mortgage loan fraud, and title insurance. If you want to flip a house but you are worried about the legal implications, it’s advisable to consult with a real estate attorney in advance.
Related: Is Wholesaling Real Estate Legal?
Just like it happens with many ideas conceived through the media, the concept of house flipping started to gain popularity on TV. Thirty years ago, house flipping was almost unheard of. However, a variety of house flipping shows, such as "Property Brothers," "Flip This House!" and "Flip or Flop," have made the concept very popular today. During the colonial times, very few people in society had the money, time and the drive to flip houses.
Nevertheless, it's believed that flipping houses got its real start during the economic recession in the 1980s. The recession decreased stock market earnings and increased property foreclosures across the United States. In order to stay afloat, savvy real estate investors started buying foreclosures, renovating and reselling them at higher prices. With the help of the media, home flipping has rapidly gained traction and is now one of the most lucrative investments in real estate.
Judging by the definition of house flipping, there is no doubt that it is a good idea with huge gains to both home buyers and sellers. To a real estate investor, house flipping is a quick way to make profits. House flipping also enables people that want to buy homes to get property without building from scratch. This is a cost-effective approach.
Additionally, it contributes revenue through the taxes paid by investors. Overall, house flipping is undoubtedly a good idea as long as all procedures are kept within legal parameters. If things are not done right, house flipping can be a disastrous experience and can even make you lose money. Successful and profitable house flipping entails making informed investment decisions.
Considering the potential benefits of house flipping, you may be interested but still wondering how to get started. Perhaps, you are a seasoned real estate investor or a beginner thinking of making your first attempt at flipping houses. Well, you need proper understanding of the real estate market, your finances, and preparation to ensure a successful start.
Here are important tips that will make you a successful home flipper:
In addition to these tips, starting a successful house flipping business requires a plan of what you want to accomplish, and an understanding of why you're pursuing this type of venture. You also need to consult real estate experts like RealEstateSkills.com, investors, contractors and real estate attorneys. To easily slide in, start with tasks that are within your capabilities and gain momentum from there.
In real estate, the choice of the market where you invest has a greater bearing on profitability. Since most markets keep fluctuating, it’s crucial to stay updated on information about the markets in your area. This will enable you to make better decisions when flipping houses. Nevertheless, some of the best markets to flip real estate include El Paso, Texas, Louisiana, Virginia, South Dakota, Oklahoma, Tennessee, Indiana, New Jersey, Florida and Colorado.
Generally, there are several factors that determine the suitability of a market for house flipping. However, savvy house flippers understand that markets or cities that are up and developing are the best. Cities with improving economies provide better opportunities for house flippers because of the higher probability of increased home buying and appreciation of the market. Even more, the best markets are located in areas with better access to affordable home renovation materials and labor.
No, you do not need a real estate license to flip houses. It is absolutely not a mandatory requirement so do not let this hold you back from getting started! However, having a license definitely has it's benefits and can help you extract more value out of each deal. Such as, earning a buying or listing commission on the deals you flip. These commissions can easily add up to tens of thousands of dollars to your income each year.
To acquire a real estate license, applicants must complete training in real estate as stipulated by their respective city. The aim of this training is to equip applicants with basic knowledge on financial and legal implications of the real estate industry. The main advantage of a real estate license is that it gives you direct access to multiple listing services & the ability to legally earn commissions.
Buying property with the goal of rehabilitating and selling it is a great way to make money in the real estate market. If you have chosen to venture into the house flipping industry, here is a checklist to get you started:
Once your offer is accepted, you'll need to finalize financing if you're not handling the transaction with all cash. If your financing is facilitated by a lender, make sure that they meet your needs & requirements before you make any commitment. Additionally, give the lender all of the documents required. Follow this with an inspection of the house, settlement of the purchase, renovations, and finally listing the house for sale on the market.
Watching a house flipping show on TV makes the process look quite easy and simple. However, getting started can be a challenge to both beginners and savvy real estate investors.
Here are useful tricks on how to get started flipping houses:
Step 1: How To Find Houses to Flip
In order to find a house to flip, choose the area or market to invest in. Check the statistics of the housing markets and the conditions of the suitable property for flipping. Also predict the overall costs of the project and potential earnings. You can find houses to flip by using the MLS, Craigslist, Paid Advertising, SEO, Direct Mail, Bandit Signs, Driving For Dollars, Joint Venturing, Networking, and other strategies.
Step 2: How To Analyze Houses to Flip
Analyzing the houses to flip is an important procedure that enables you to properly understand the various costs involved in buying a house and renovating it for sale. Here's what you need to consider help you analyze houses to flip.
Step 3: How To Get Money to Flip a House
Since you will be buying houses and refurbishing them for resale, you need a substantial amount of money. In fact, getting started in the house flipping business can be very hectic without sufficient capital. Relying on lenders is one of the ways of obtaining money for flipping houses.
If you want to start flipping houses but lack money, here are some of the options to consider:
Loans for Flipping Houses
Loans offer the best way to go if you need money to purchase and renovate homes. Some of the loans available for flippers include:
In both cases, lenders keep the first position lien on the property until the loan is repaid by the borrower. However, the flipper is entitled the rights to the house including the title.
Step 4: Buying a House to Flip
Just like other investments, flipping houses can be a huge risk if you do not understand the process of buying a property. It is recommended that you use "Other People's Money (OPM)" when starting to buy houses to flip. By using other people's money, you're able to use your own cash on hand to sustain your business while putting other's capital into your housing projects.
When buying a house to flip, remember the following:
To buy a house to flip without a lot of hassles, consider talking to a few local real estate experts for more insights on how to ensure success.
Step 5: Renovating a House Flip
Renovations are some of the key areas many house flippers spend huge sums of money on. The golden rule for renovating houses is to limit spending to improvements that add value to the property without elevating costs.
Here are additional tips for renovating homes:
Step 6: How to Sell a Flipped House
Now that you have managed to successfully buy a house to flip and completed all necessary renovations, it’s time to put up the house for sale.
Here are useful tips for selling a flipped house:
When putting up a flipped house for sale, you should also remember to give a "wow" effect or add something that makes the property stand out amongst other renovated houses. This can be done with small improvements, such as adding a little splash of color into the kitchens, installing intricate modern tiles in the bathrooms, or even painting the front door a unique color like red or teal. Nevertheless, make sure that you will recoup the time and money spent on these improvements when you sell the house!
Many people think that flipping houses is an easy undertaking, but the truth is that reaping the rewards requires a lot of effort. Much of this effort can be vividly be portrayed in the house flip before and after photos or videos. Documenting the conditions of the house before and after upgrades provides a background of the property to potential buyers. It also shows them the efforts and actual renovations done on the house. Whether they are in the form of photographs or videos, the house flip before and after media can give the flipper some leverage when negotiating price during the sale.
Is Flipping Houses Profitable?
The profitability of house flipping is a factor that every real estate investor always looks into before making an investment. While flipping houses presents opportunities for flippers to make money, profitability mainly depends on making sure that the renovations increase the value of the house by at least 100% of the overall expenditure on renovations.
One of the secrets to achieving this is buying houses well below the market value. Another way to ensure profitability is through conducting renovations that are less costly, but that increase the demand for the house. Such renovations may include introducing new floor plans, rebuilding certain features, and installing additional bathrooms or bedrooms. Overall, flipping houses can be a lucrative venture if you understand the rules of the game.
Generally, flipping houses is a rewarding investment. However, the amount of money that a flipper can make varies from one opportunity to another. It is also dependent on a number of other factors.
Key among them include:
To make the most money flipping homes, focus on small remodels, conduct economic upgrades, and work with professional contractors.
In the United States, the gross profit margin for flipped houses stands at about $29,342. However, flippers can still make more if they flip property retailing in the range of $100,000 to $200,000. On the other hand, the average house flipping salary also depends on the market or state. For example, according to Lend EDU in 2013, house flippers in Massachusetts pocketed an average gross profit of $103,384 per house while their counterparts in California earned $99,999 per house. The average house flipper salary had yet to be determined, but it can be extremely lucrative even if you are only doing one house flip every few months.
Seasoned house flippers will tell you that flipping houses is an incredible real estate investment opportunity to consider.
If you are considering flipping properties to make a living, here are tips to guide you:
In order to make things work as per your expectations, be involved in all projects from the beginning to the end.
Just like with other businesses, there are basics of starting a house flipping business that you must put in order beforehand. Before moving into the complex stuff, begin by understanding the market and your skill level, preparing a business plan and securing financing.
Here are additional requirements for starting a house flipping business:
With these requirements, you can move into buying houses, renovating and selling them for profit.
In reality, flipping houses is not a walk in the park. There are obstacles that every flipper must carefully learn to navigate through to be successful. The best way to stay ahead of competitors is by acquiring accurate information. Thanks to the internet, you can now learn almost everything online. It’s not a must for a flipper to go through rigorous and lengthy training. However, it is important to have a basic understanding of the profession and market.
You can learn how to flip by watching credible real estate TV shows, reading online publications, taking online house flipping classes and interacting with savvy house flippers. The short course offered when obtaining your real estate license will also provide useful insights into the industry. However, there is so much more that you will learn while doing the job.
House flipping classes can be a great way to develop your knowledge in the trade. But, due to the constraints of time and money, you do not want to get into a program that will keep you occupied for several weeks or months. Instead opt for short, affordable and flexible online flipping classes offered by credible institutions. Conduct some research to identify the best house flipping classes that are aligned to your objectives and where to find them.
After all is said and done, every flipper always wants to know whether the investment is worth before investing. If the projected house flipping salary is something to go by, flipping homes is indeed a worthy investment. However, always remember that success rates in the house flipping industry vary based on a number of factors. Therefore, it is advisable to first understand the risks before venturing into the business.
Yes, despite the changes that occur in every industry, house flippers can still get more opportunities and make good money flipping homes. It mainly depends on how you view the market and acquire profitable real estate investment opportunities. Overall, house flipping offers huge potential for real estate investors to make money in 2019 and beyond.
In a nutshell, successful flipping involves a lot of work. But, the most important thing is to always conduct research and make wise, timely moves.
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