How to Flip a House and Make a Profit
Making money flipping homes is hot again! In fact, gross profits from homes flipped across the country resulted in the highest average profit in over a decade. These gross profits have resulted nearly 46% ROI (return on investment), a 10% increase since 2005. Although 20% – 30% of the profit is usually reinvested into flipped home repairs and remodels, the average flipped home profit is still between $40,000 and $45,000! Its time to learn how to flip a house and make a profit!
Despite how easy flipping houses on television (Home-Flipping TV Shows) make it look, flipping real estate is not as easy as it looks, and it can not be done in 30 minutes. Learning how to flip a house to generate income takes research, determination, and extensive planning and organization.
Know your Market
Buying a property at a decent price can set you up for a nice profit – if it is in an area where people are interested in living. Anything other than that is setting yourself up for low profit – or even a loss. Find the up and coming neighborhood hot spots, the places have the potential to be the next great neighborhood. While research may not be your thing, it can be the most important part of the entire process. Let’s not forget – the goal is to flip a house and to sell it as fast as possible!
Take Time To Learn About Home Financing
To the layperson, there appears to be a million different banks with a million different options – but to the seasoned real estate professionals there are only a few options when it comes to flipping for profit. Take out a construction loan? A mortgage loan? How about paying for the property with cash (do you know the pros and cons of using cash?) Don’t mess around with financing – make sure you know what’s best for you and your bottom line!
Know Your Limits!
Reality flipping TV shows make it look like every flip has a built in $300,000 profit margin – if only learning how to flip a house were that easy! Spend some serious time reflecting on how much money you have to put into a house; more importantly, be comfortable knowing how much money you could lose during the process.
While flipping real estate has a lot of details and risk, it does have a basic formula: spending as little money as possible on the property + selling it as fast as you can = the largest profits possible. This is where strategic negotiating becomes valuable, and not just when selling your flipped home. You need to be very comfortable negotiating during all phases of your project. From securing financing and points from the lender, to wrangling for the best rates and bids from plumbers, general contractors, and even real estate agents – being a strong negotiator is essential.
Know Labor and Material Costs Associated With Flipping a House.
Know the going rates for the home improvement industry, including electricians, plumbers, and sheetrock & landscape crews. Nothing eats up your flipping profit as fast as overpaying for materials and labor costs. There are several software packages that provide material, labor, and expense platforms, but none of them do it as well, or are as user friendly, as the free House Flipping spreadsheet available here.
Build Relationships With Your Builders
Like any business, flipping homes for a living is all based on relationships. Find a contractor that is professional, that you like and you work well with? Take time to build a lasting relationship with them – that relationship alone will be worth its weight in gold!
Speaking of building relationships, start building relationships with potential sellers and buyers NOW – especially with potential buyers even before you buy your first investment property. Why? Relationships provide information, information builds knowledge, and knowledge is power. The ideal situation is to have your investment or rental flip sold as soon as your home improvements are complete (even sooner if possible!).
Learn The Real Estate Improvements That Increase Your Flipped Home’s Value.
Use a Simple House Flipping Spreadsheet to budget and focus on value-driven projects first. Where do you start? A High-Quality Home Flipping spreadsheet to figure out the profit margins on a bedroom remodel, new kitchen appliances, new siding versus a fresh coat of paint, are energy efficient products worth the investment? Just as important – take some time to learn the projects that create money pits and decrease both selling price and your profit margin.
Find A Role Model Who Makes Money Flipping Houses
Most people get into the flipping business because of the success of a friend or family member. Do you have someone like that in your family? If so, you are lucky – you have a built-in family member mentor! Don’t have a go to flipper in your network? Go out and find one! Can’t find a mentor to help you pro-bono, then sweeten the pot by offering a veteran house flipper a percentage of future sales in exchange for their hard-earned, invaluable knowledgeable! A financial arrangement like this is a win-win for you and your mentor – the more money you clear on a sale, the more your mentor makes – this keeps them motivated and keeps you in the know as to what works and what to avoid! Remember, in the end, this is about making money – and money talks….to everyone!
Foreclosed Properties and New Listings are Prime Real Estate Opportunities
Many websites provide the latest and most current foreclosed homes. Many of these properties are costing the banks and lending agencies money and can be scooped up at auction (or even purchased from the owner) for massive discounts – stay on top of these hot prosperities! Use the Internet to stay on top of what’s happing in your area – check these websites frequently:
Make An Offer on Your Future Investment Property
Have you done your research and found the house to flip? What are you waiting for, go get it! The first step is to make an offer. If it’s a steal, don’t be surprised if you find some stiff competition from other professional real estate house flippers; you might even find yourself in a bidding war! Don’t panic – know your numbers and set your walk away price – don’t get sucked into spending more than your budget or you will regret the process.
Be Smart with Your Approach and Hustle, Hustle, Hustle
Avoid competition by beating the street, targeting a selected neighborhood, contacting the owner directly, even going directly to the front door and make an offer (in cash if possible). You may be new to the home flipping business, but you are not new to hustle – go get your house at the price you want to pay!
However, before you seal the deal and sign a contract to buy, be sure that you are aware of how much you can invest in the home and still come out with a healthy profit. Remember, by invest – we mean the price of buying the home, taxes, fees and interest on any loans, and the estimated costs of any repairs, upgrades, or remodels you are planning; and perhaps most importantly, pad your improvement costs by 15 to 20% to cover unforeseen problems from during the flip.
Know Your Strengths, Know Your Weaknesses, and Know Your Timelines
When planning how to flip a house, plan out which home improvement renovations you are comfortable with and can completely quickly and those projects which will require a contractor to complete. Don’t forget that your time is valuable, and in the home flipping market; time is not your friend, time is money. With that being said, unless you are 100% confident in your “do-it-yourself” abilities, contract out to the professional contractors; it will save you time, a lot of headaches, and most importantly – money.
You are probably noticing a reoccurring theme here – successfully flipping real estate all comes down to planning and vision. Each city, town, and village have different permit requirements – and all take varying amounts of time to work out the details and secure approval. Trying to avoid the process (or not being aware of the requirements) can stop work in its tracks and put you way behind your intended completion date.
I think the most vital step in learning how to flip a house is to map out your plan for flipping your home on a timeline, or better yet a house flipping spreadsheet like this one (I like it because it has every area I need to think about, is easy to use, and its Free! – who doesn’t love that!) Mapping out your plan keeps you on track to turn a profit in the timeframe you planned.
How to Flip a House on the Market: Resisting to Sell
When it comes time to selling home, you really have two options: use a realtor or sell the house yourself. For the sake of time and convenience, many home flippers list with a realtor. I can’t say I blame them – for a reasonable (and often negotiable) percentage of the flipped home’s selling price, you retain the services of a professional real estate agent who knows the market, has connections to people interested in buying homes, and has the ability to market your homes in the MLS and many of the best real estate websites for selling a house.
Others decide to take the “for sale by owner” approach. When learning how to flip a house, these home flippers save money by avoiding real estate agent fees, but at the same time lose access to a huge market, a motivated professional sales agent, and the seller takes on the headache of showing the newly flipped property and working directly with potential buyers. As a result, many first-time home flippers find themselves sitting on a house for months, waiting for it to sell. The choice is up to you – carefully consider the pros and cons when developing the plan for flipping your investment
Flipping Homes Is Not Easy Money…But It Can Be Smart Money
Flipping a house is not as easy as people think, however with strategic planning you can minimize your risk and maximize your financial reward. Along the way your patience will be tested – there will be moments that feel like your flipped home will never sell; but it will. You will potential buyers who will offer you far less than you than the listed sale price of your flip; you will need to decide whether accepting a lower offer for your home is better than waiting for another month for the house to sell.
While there is not one secret to home flipping success, the research seems to indicate that those who are able to learn how to flip a house, stay organized, know their strengths and weaknesses, and can plan estimate materials, labor, and other expenditures are those who sell the most houses.
Despite all the challenges associated with flipping your first home; if you love fixing up real estate and can whether the roller coaster ups and downs that come with flipping houses, than you might be ready to flip your first house!