How to Start Flipping Houses | 2017 Guide on How to Make Money Flipping Houses
Flipping houses is becoming popular again, but participating in the housing market rise can be risky.
If you have no experience in realty or the home buying market, it’s hard to know exactly how to start flipping houses. There are an abundance of concerns and questions associated with the practice from “how to make money flipping houses” to questions as simple as “what is house flipping?”
It is a challenging process. If it weren’t, everyone would learn how to flip houses and make millions. It can be a really lucrative project if you’re willing to invest the time (and the money). Let’s break down what it takes and show you how to start flipping houses.
Breaking It Down
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What is house flipping? You might be vaguely familiar with the practice; it’s likely you’ve seen a show or two about it on TV. House flipping is where you purchase some real estate, spruce it up, and sell it for a profit within months. Typically, the property is a foreclosed home or another property listed well below market value. That’s the simple explanation, anyway. In practice, learning how to start flipping houses takes quite a bit more research and education.
How to Get Started Flipping Houses
There are a number of steps to take when it comes to flipping houses, but your primary focus in the beginning should be knowledge acquisition. It’s imperative that you understand the ins and outs of the house flipping world. If you want to do this right, you have to put the time in.
House flipping is a risky operation. Things can go wrong. To mitigate the risk, you want to know what you’re doing every step of the way. This will prevent bad decisions on your part, and you’ll be aware of any red flags as soon as they pop up. There are blog posts and other great articles on the internet that can help you. Now that you’re committed to learning, what are the next steps?
Scoping Out the Market
You need to get a good idea of what you’re getting yourself into cost-wise. Housing prices vary widely by area. A real cheap price in some places could be a bank-breaker in others, which is why market research is instrumental. There are a few questions you can ask yourself to get a good idea of what’s happening in your market:
- What is the average sale price for a foreclosed/REO home?
- What is the average sale price for a home?
- How quickly are homes and properties selling?
- Are certain styles or layouts of properties selling more quickly than others?
- Are certain areas near you selling more quickly than others?
Understanding your market is a pivotal step in learning how to find houses to flip. Immerse yourself in the buying and selling culture of the locations around you. Talk to real estate agents and visit open houses to see what kinds of houses and features are selling best.
There are a number of helpful resources as you scour the market for houses and foreclosure listings. Websites like those listed below can help you with your search:
Use tools like these websites to find up-to-date listings of possible house-flipping options in your area. The word of caution here is that, because of their ease of use, you might not be the only fish biting at the good opportunities presented. That’s why it’s good to talk to some entrenched experts in your area or even find a real estate agent. Look for an agent with some personal experience in flipping houses, and you’ll be in great shape.
Mapping it Out
As you continue to do your market research, it’s important to quantify some budgeting specifics.
- How much are you willing to pay?
- What’s the maximum you can afford?
- How much can you afford to lose in a deal?
It’s easy to want to avoid the monetary aspects of flipping a house. Sure, everyone wants to know how to make money flipping houses, but very few people get excited about the math it takes to get there. In order for the numbers to make sense in the beginning stages, you need to figure out the after-repair value of the house. This is also known as the ARV.
You can use sites like realtor.com or Zillow to help you figure out the ARV. The best way to do it? Compare your projected finished product to other comparable houses that sold recently. In order to get the best estimates, look for houses with the following criteria:
- The houses sold recently (less than 90 days)
- The houses are in your target market
- The houses have similar bed/bath count
- The houses are similar in style, or at very least similar square footage
- The houses have similarly updated amenities
Amenities like new heating or updated kitchens and additional bedrooms/bathrooms will make properties more desirable. If you expect your home will have more of the items in these categories, you’ll want to adjust your price upward accordingly. The same applies if you expect to have less in these categories (fewer baths, for example). You will want to adjust your price downward to reflect that.
In addition to using websites to help you determine your ARV, you can use a realtor. In fact, it’s worth your time to have a realtor cross-check the numbers you pulled from the internet. He or she will have access to the multiple listing service and could answer questions about the numbers.
What to Look for When Picking a Property
There are so many elements involved in learning how to start flipping houses. We can’t stress enough that, in order to do well, you need to know your game. There are going to be some bad properties out there that won’t be worth anyone’s time. When you’re finally picking properties, what should you look for? What are some variables that will make a property worthwhile?
- Structural integrity
- Market value
- Proximity to you
- School districts
- What needs fixing?
These are just a handful of aspects worth considering, but they serve as a good starting point. We discussed location when we talked about market research. It’s worth keeping it in mind, for obvious reasons. If you pick a house in an area where no one wants to live, it won’t matter what you do to fix it up. You need to be conducting your search in desirable parts of the town or city in which you are looking. Being able to discern good locations is a key ingredient when learning how to make money flipping houses.
Structural integrity is important. When you can, get the property inspected before buying. Sometimes you won’t always have the opportunity, at an auction, for example. Take a look at what else needs fixing, too. Wallpaper, old carpet, and a grungy exterior are much easier to fix than bad wiring, water damage, or mold. Money spent on structural repairs or mold isn’t money reflected in the asking price as you move to sell. You have to do the repairs, but it takes time and costs money that you won’t be able to factor into the sale price.
Good schools and school districts can play a big role in a family’s decision to pick a particular location. It might not make or break a deal, but it certainly won’t hurt. You’ll also want a location that’s close to you. Even if you aren’t handling the house rehabilitation DIY-style, you’ll at least want to check in frequently and make sure everything is on track.
What Needs Fixing?
Now that you have a better sense of how to find houses to flip, we need to take a look at the most profitable fixes you can make. A great place to start is the kitchen.
When considering the kitchen, you don’t need to over-do it. It’s definitely worth updating some appliances, adding some modern paint colors, but make sure it matches the aesthetic of the rest of the house. Anytime you hyper-specialize something, say by investing tens of thousands of dollars into high-tech kitchen upgrades, you’re going to lose big sections of your buyer market. Very few people, if any, will want to pay the hefty price markup for the sake of an over-done, out-of-place kitchen.
Instead, keep it stylish, functional, and competitive. A popular trend these days is “going green.” Adding a bathroom is another great way to see good returns on your investment, especially if it was a single-bath house to begin with. Increasing closet space can be a good investment too.
Things like applying new shingles to the roof or making changes to the garage aren’t the kinds of investments that will add much to your selling price. Roofing does need to be replaced periodically, and you could list it as a benefit of the house, but as far as how to make money flipping houses, it won’t help you significantly.
Look at the differences in features and selling prices for some of those comparable houses in your market. Talk to your realtor, and see if she’s noticing any trends. See what other fixer-up patterns you can find to make every dollar you put into flipping the house count.
Assemble Your Team
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If all you do after reading this post is buy a book on how to start flipping houses, you will still be underprepared. A great option to explore is finding a mentor. Everyone has to start somewhere, and there are real estate flippers out there who would be happy to help. Even if you have to offer a little commission on your first successful flip, the small percentage from that sale will save you thousands of dollars—and headaches—as you move forward.
A mentor will have experienced advice and will be able to speak to the specific market in which you’re looking to flip. With that kind of local knowledge, they’ll know how to find houses to flipand how to make money flipping houses in that market.
In addition to a mentor, you will want to rub elbows with people in the trades from which you’ll hire. Plumbers, electricians, general contractors, landscapers, and even bankers are all professionals worth getting to know. As you hone in on and start working with your choices, you’ll be able to build relationships that are reliable, consistent, and efficient.
How to Flip Houses with No Money
Flipping houses is certainly easier when you have plenty of your own money to spend. Even if you don’t have cash, there are other ways to tap into your assets to invest in houses:
- Credit cards
- IRAs (real estate can be considered an “investment”)
- Home equity
But if you don’t want to touch any of those options, knowing how to flip houses with no money will come in handy. Here are some options if you don’t want to use personal assets:
- Hard money lenders
- Private money lenders
- Friends or family
Hard money lenders usually charge pretty steep interest. The good news is you don’t feel much of that (ideally) because of the quick turnaround with flipping houses. We mentioned rubbing elbows with people earlier, and bankers were among that group. Now you see why: A loan from a bank could be the answer to your “how to flip a house with no money” search. Knowing the bankers and having a great relationship with your bank goes a long way in securing loans for a house flipping project.
Private money lenders are “ordinary” people with some money that they’re looking to invest. It could be a successful business owner you know; it could be your ophthalmologist or your family orthodontist. With private money lending, you have more control over the interest charged to you from the investment. Because you have this increased control, there will be less interest involved compared to hard money lending.
Then there’s the friends or family option. If the deal goes south, no matter who your investor is, the relationship will likely be a little strained. But with friends or family, that sentiment gets amplified. Be careful and respectful as you work with your friends or family as investors. Treat them as professionally as you would your hard money lender, your banker, or your private money lender.
You have a lot of options for partners, too. It could really be anyone with money: friend, coworker, attorney, cousin, other real estate investor, etc. Typically, especially with first time flips, you’ll offer the partner a 50/50 split of the profits. The partner fronts the cash, and you take care of everything else involved.
What Is Flipping Houses: a Final Takeaway
Now you know a little bit more about how to start flipping houses. It can be risky business, but it can also be lucrative. The best thing you can do is get “in the know” and stay there. Educate yourself, research the market, and connect and network with the right people.
You’ll get a better idea of how to find houses to flip by talking to realtors and your newfound mentor. You’ll learn how to make money flipping houses, real money, if you put in the front-end education and networking effort. You even have options for how to flip houses with no money, if that’s the path you need to start on.
If you commit to flipping houses, and put the time in to really learn how to flip houses, you could have a great time making good money.
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