If trying to figure out how to flip a house, you've come to the right place. In this article, we will walk you through everything that you need to know to turn a cheap fixer-upper into a profitable dream home—all within a matter of weeks.
What does flipping a house mean?
Flipping a house means purchasing a home with the express intention of turning a profit on it.
Essentially, when you flip a house, you purchase a home for a low sum of money. Then, you invest a pre-determined amount of money into the home. You use this money to complete a range of improvements to increase both its curb appeal and its fair market value.
After the renovations are completed, you market the house, making sure to highlight the improvements. Once you sell the house, the process starts all over again with your next project.
How to Make Money Flipping Houses
It is easy to lose money when you are flipping houses. However, if you plan carefully and are smart about it, it's possible to generate a healthy income solely from flipping houses.
Here is an example of how you would be able to make money only flipping houses:
Let's say you purchased your first home for only $90,000. It's in an okay location, but it's a real fixer upper. Then, let's say you spend $50,000 renovating the home. You don't simply do minor cosmetic changes either. You knock out walls. You add a bathroom. You plant trees in the front yard.
The total amount of money you invested into this home is now $140,000. But wait! Because of how new and nice all the changes you made are, the home sells for $190,000.
You've made $50,000 in profit! Great work.
However, this is an ideal situation. Things do not always go this smoothly.
Even so, here is how to flip a house so that you can (hopefully) end up in this perfect example.
How to Flip a House
This is a step-by-step guide on how to flip a house. If you follow these steps and keep your cool, the process should be smooth sailing for you the entire way through.
Find a fixer upper.
The first step in flipping houses is simply locating a home you want to invest in.
When locating the home, you'll want to find one that needs low-cost repairs that add high value. Some of these repairs include renovating the kitchen, updating a bathroom, and patching some walls.
Depending on your local market, the house itself could seem to sell for significantly below market standards. For example, in markets in the South and Midwest, you can easily buy a single-family home for less than $100,000. If you are interested in purchasing a home on one of the coasts, your initial costs are going to be higher.
This should be your new house-flipping mantra: Fall in love with the ROI, not the house.
Create a list of several houses that would bring you a good return on your investment. Spend a couple of months analyzing the market to get a feel of what a good deal is. Once you find a property that looks good number-wise, it's time to make a move.
Gather your supplies.
The next step in how to flip a house is to ensure that you have everything you need on hand before you finalize your purchase of the house.
Here is what you need to have:
A good credit score is an essential part of flipping a house because if you are constantly buying and selling homes (as you will be if you flip homes often), then the bank (or your lender of choice!) needs to know that you are “good for it.”
Cash on Hand
Even so, many home flippers choose to purchase each of their investment homes cash only. This is the preferred method, as continually opening and closing mortgage accounts can be suspicious and leave you vulnerable to default.
Once you get into the swing of flipping houses, it can be easier to pay cash. This is because you can use the profits from any previous flips you completed in order to purchase your next investment home.
However, raising the capital for your first flip can be tricky. Although it's not the best idea, many potential investors find themselves wondering wondering, “Can you flip houses with no money?”
You can, technically. It's usually called OPM in the industry. This tongue-in-cheek acronym stands for “other people's money.” You can use partners, hard money lenders, or private money lenders.
The main downside is that you will have to pay back your principal loan with interest. And those interest rates are typically quite high.
It's a gamble, but you'll want to make sure your timeline is such that by the time the balloon payment is due, you are making enough money off the investment to pay it and make money for your next venture.
A Good Agent
In order to successfully flip a house, you need a solid real estate agent. You need someone who understands the blood, sweat, tears, and most importantly, money, you invested into this project.
Your should be able to roll with the setbacks that you often face while flipping a house. And the agent needs to be familiar with selling flipped houses so that you can ensure that they can market it successfully.
You also want an agent whose commission fees are not astronomical. This is because you are not simply selling your family home. Flipping a house is a purely financial transaction, so you should be looking to save money wherever you can.
A great way to do this is by working with an agent who works on a flat fee structure instead of an agent that works on commission. A great resource for finding phenomenal flat fee agents is right here on Clever!
Our agents can sell your home for a highly competitive price—all for just one flat fee.
You obviously need to have your finances sorted before you can flip a house, which is why we listed them first. However, don't let the fact that contractors are the last “supply” you need to gather trick you into thinking that they are any less important.
Contractors can make or break your home-flipping experience. This is because contractors do the majority of the renovations. If you do not plan on completing all of the work yourself (and unless you have unlimited funds and experience in the industry, that would be a terrible idea), you need good workers.
Time is literally money when you are flipping houses. You want to work with contractors who can come as close to on time and under budget as possible—all with quality work.
Expect the unexpected.
As you look for a house to flip, assemble your crew of Realtors and contractors and begin to complete the work on renovating and marketing the house, remember one thing:
Everything that can go wrong, will go wrong.
You need especially tough skin to be able to flip houses without completely losing your mind. Pipes will break. Contractors will overcharge. They might not even show up for work when they said they would. The paint you ordered will somehow get lost in the mail. You will find weird mold in weird places.
These frustrating situations will come up again and again. The key is to be prepared for them before they occur. Have a game plan in place for weird contingencies. Make sure to build a cushion into your budget for unforeseen circumstances. Be ready.
Sell the house.
If you did your due diligence earlier in the process of how to flip a house, then this step should be no problem for you. Especially if you decided to partner with an agent from Clever, then marketing and selling your flipped house should be a breeze.
The Benefits of Flipping Houses
There are plenty of benefits here.
The most obvious being once you get good at it, it's possible to earn what some might consider an annual income in a matter of weeks. However, as discussed, it is not for the faint of heart.
That said, many novice flippers consider the experience in real estate and construction to be well worth it.
The Risks of Flipping Houses
The risks of flipping houses are exactly what you might expect. The house could end up being a total flop and costing you a serious amount of money. The renovation stage could go on for far too long and cost you lots of money.
Basically, flipping houses could cost you a lot of money. And if you use the “OPM” method to fund the project, it could cost you lots of money that's not technically yours.
Common Mistakes in Flipping Houses
People who don't know how to flip a house and jump into it straight away are very likely to make mistakes. If you don't take the time to do your research and build a contingency plan, things will go wrong. Flipping houses successfully is mostly about planning and due diligence.
For the best results, be sure to follow the 70% and 90-day rules.
The 70% rule states that an investor should only pay 70 percent of the ARV (After Repair Value) of a property minus the repairs needed when purchasing it.
And the 90-day rules means that the whole process should take place within this timeframe.
How to Turn Flipping Houses into a Business
The most common questions people wanting to make a business out of flipping houses want to know are:
- How much money do you need to flip houses?
- How much money can you make flipping houses?
And the answer to both of these common questions is a solid "it depends."
It depends completely on your local market. As mentioned, in markets in the South and Midwest, you can easily buy a single-family home for less than $100,000. If you're working on the East or West Coasts, though, that initial investment will be higher. The cost of living in your area will also determine contractor prices and how much you can sell the home for.
The good news? It's not illegal to flip houses. And you don't need a license.
Anyone can start, as long as you have the capital or a way to get it.
Tips for Flipping Houses
Start doing your homework today. Analyze house prices in your area, track the market, and get to know a good contractor if you can't do repairs yourself. You may even consider working alongside another flipper or contractor to start, as you'll need a good eye for repairs.
Also, don't forget to set aside money for taxes. As a business owner, you'll be in charge of paying the taxes on the sale, paying for supplies and employees, and funding your next venture. Make sure to build each of those costs into your prospectus before deciding on a property.
Flipping houses can be a great way to make money, if you know the market well, take the time to assess your house choices, and time it right. You don't need to have any qualifications, but you do need to be willing to put in the work to succeed.
‧ ‧ ‧ ‧ ‧