Flipping houses for profit is no simple matter. If you are new to the practice, it is not something you can learn to do by taking a single house flipping course or a weekend seminar. You will also never learn all the steps to success by reading one blog or article online or in DIY magazines, although there are excellent ones available. or by watching episodes of fix and flip reality television. The truth is that house flipping is not easy and it certainly is never simple. If you are just beginning your venture into flipping houses for real estate profit, you have much to learn.
Yes, there is a way to flip houses and the best way to learn how is by doing it yourself on your own. Making your own mistakes along the way is a great teacher, especially while you have safeguards in place to assure you have minimized any potential downside risk from them. It is not as easy as most people tell you it is, but there are definitely ways to reduce your learning curve and avoid major pitfalls to assure you still achieve a nice profit. And as with anything else in life, the more you do it, the better you become at it. Experience truly is the best teacher.
Defining House Flipping
There are different definitions of house flipping. Some people buy deeply distressed offerings as foreclosures, at auction, or from the bank as short sales at a deep discount. They then quickly flip or sell the property without many, if any, renovations. This type of flip relies on quick sales but provides little additional value to the end buyer. This is not the type of flipping to which this article refers. Also this type of flipping gets confused with wholesaling. A wholesaler flips a contract to an investor who then does want he or she wants to with the property.
When you purchase a distressed property and nicely renovate it, then sell it, you are adding real value and contributing to the strengthening of the emerging housing recovery. With the real value you have developed, comes great profit potential. This is the kind of house flipping we will deal with here and that provides excellent living spaces and opportunities for profit potential in real estate investments.
Learning any kind of real estate investing is challenging. This is especially true of house flipping . Flipping houses isn’t simple and is a lot of hard work. It is capital intensive as well. Cash is needed to buy the house and to make the necessary improvements. Then hopefully you will recover your capital and then some (your profit) to make your efforts successful. It is a fast-paced endeavor and different factors may arrive that make house flipping a risky investment. Flipping is not for everyone. When done correctly, however, the profit margins can be very worthwhile indeed. If you are just starting to flip houses or thinking of getting into the business, the following are beginner’s steps to help shorten your learning curve and help you begin flipping profitably in a short amount of time.
Beginners’ Steps for House Flipping
1. Take Stock of Your Cash Resources
First you need to take stock of your financial resources. How much money do you have that you can invest on your own? Will you need to find investors? Finding investors becomes a skill in and of itself, but first you must know how much cash you have to invest. Having money to invest in real estate is certainly a plus but if you don’t there are ways to flip houses with no cash of your own using private money lenders, banks and other sources. One way to start is to find a joint venture partner or partners who have money to invest. Splitting the profits allows you to accomplish your first flip and gain the experience, building momentum and providing cash for your next venture.
2. Build Your House Flipping Team
After you have your financing in place, start building your house flipping team. Your team is composed of those who will help you find, fix and sell the property you choose. You want people whose collective expertise will help you reach your goals as quickly as possible. No matter what your level of experience is, you will not be able to do everything by yourself. Building your support group only helps you be more productive, will help you work through any problems that arise and help you with the challenges you face. On your team should be contractors, real estate brokers, architects, insurance specialists, accountants, money lenders, and inspectors. All of these professionals will help you shorten your learning curve and help you flip your houses (and make money) faster than you could on your own.
3. Find a Suitable House to Flip
This is the key to your success, especially if you want one in a specific geographical area. Research the areas in which houses are located or which interest you. Ideally, you want to be able to buy a house for a low price and eyeball it to see if you are able to rehab it quickly and relatively cheaply so you can sell it at a higher price and make a profit. To identify all these aspects correctly, you need to rely heavily on your house flipping team.
4. House Flipping “Napkin Math”
When doing your initial house analysis for choosing one to flip, check to estimate if the house is right for you with a little “napkin math”. First determine the potential selling price of the house once it is renovated – the After Repair Value (ARV). Then subtract the original purchase price, the cost of the repairs, and all monthly carrying costs (payments, etc.). What remains will be your profit. If this math points to profits, then you may have an excellent candidate for flipping in your sights and you should purchase it.
5. Manage the Rehab Budget Carefully
Whether you do the rehab on your own or hire a professional contractor, manage the process carefully and ensure the repairs are carried out as specified and on budget. Repair costs can skyrocket if unexpected problems arise (wiring not to code, etc.). Always build some contingency money into your budget for unexpected problems. Adding extra unplanned and unnecessary touches to the renovations (extra light fixtures, etc.) are a quick way can make your profits disappear. Don’t overextend yourself and try to do more than the budget allows.
6. Make Profit by Working Fast
Making a profit is a race against the clock. The longer the rehab drags on or the house sits on the real estate market once completed, the less profit you will make. Financing and insurance payments, taxes and utilities, and other soft costs like other carrying costs, all have to be paid at regular intervals, add up to leech away at your profits the longer you own the house. The less time you hold on to your investors’ money, the more profits you make. Make the improvements quickly. Do them well but fast. Stay on budget and hire excellent real estate agents who price the house to sell quickly. Aim for six months from house purchase to sale. Budget in a few additional months of expenses just in case, and you can make a profit on each house you flip.
Stick to a disciplined set of flipping rules and you can make profits from flipping houses in slower markets as well as rapidly appreciating ones. Because it is such a short-term method of real-estate investing, house flipping is fairly immune from extreme fluctuations in the market. Therefore successful house flips are possible under any real estate market conditions.