With major shows on HGTV glamorizing the process, house flipping has become a massive hit across the country. Would it surprise you to know that being a house flipper is not the easiest of jobs? In all actuality, it requires a strong will, resilience, and extreme patience as things can, and will, go wrong constantly. If you’ve been thinking of flipping as a side-hustle or a full-time career, we’ve got everything you need to know down below. From the profit you can expect to a step-by-step guide on how to be successful, this is your guide on how to become a house flipper.
What is a House Flipper?
A house flipper locates properties at a discounted price, usually because they’re in distress or because it is a short sell. Though the reality is that homes are sold at reduced rates for a variety of reasons, each unique to the seller. Regardless, a flipper is always happy to snag up a property for a good price.
Once they’ve located a good deal, they will then purchase the property, not with the intent of living in it, but instead, to completely remodel it, also known as “flipping.” Flippers will increase the value of the property through remodels and list it again at a price usually 40-50% more than the price they paid to initially purchase it.
Housing flipping has risen in sharp popularity because it presents a relatively quick way of making a profit, especially so when compared to traditional real estate investment techniques like purchasing a property and renting it out or buying and holding. The entire purpose of flipping is to make a profit in a short amount of time.
Step-by-Step Guide on How to Become a House Flipper
When you become a house flipper, it can be a scary process! We’ve broken down everything you need to know from before purchasing a home to the act of flipping. The goal here is a seamless buying and selling process. From beginning to end, house flippers should strive for success without headaches.
1. Research the Business
Are you sure house flipping is the industry for you? Take some time to thoroughly investigate the flipping business. Decide whether you will need funding for your first few investments or whether you have enough cash to invest in the project. Also, take time to look into other local flippers and see if they would be willing to work with you on a flip or two so you can see the business firsthand and make sure it’s one you can navigate on your own.
2. Find an Agent to Help You or License Yourself
Consulting an agent should be near the top of your steps when easing into house flipping (if you’re not already a licensed agent yourself). Real estate agents are necessary for the sale and purchase of properties, so finding one you can trust early on is a great first step.
As you continue developing a relationship with this agent, they may be willing to discount their rates occasionally to help you increase your profit. A real estate agent is also great for keeping an ear out in their circles or cold calling potential sellers to find great deals and properties for you to market that haven’t even hit the market yet.
Your other option is to obtain a real estate license in your state. License requirements will vary state to state, but you can expect investment in the hundreds for your pre-licensing coursework and a few dozen hours of work. Though, it goes without saying, the sacrifice will pay off.
3. Budget. Budget. Budget
In an industry heavily revolving around money and finances, you’ll need a solid budget before moving forward with the flipping process. The easiest way to maneuver the flipping space is to have cash for purchases, particularly the initial house purchase.
While other financing options are available, avoid them where possible as you’ll need to pay interest and lender fees, lowering your profit margin. On the other hand, there’s more freedom entirely in having cash to pull from rather than the lender-approved expenses.
If you will be pulling from your own reserves to finance the project, be sure you’re not overstepping. Remember to follow the 70% rule and the old saying, “expect the worst, hope for the best.”
4. Build Your Network
In addition to working with a real estate agent, you’ll want to garner a team of highly qualified people and companies for your labor and parts—research general contractors in the area. Locate plumbers and options for materials.
You may find that the labor and contractors you hire for the work may have their own connections for cost-effective materials, but it won’t hurt to research so you will have local prices as a reference.
In order to become a house flipper, you’ll want to be sure you have a solid network, so really take some time to find well-qualified people joining your team and in your reserves.
5. Find a House to Flip – aka the Fun Part!
Shopping for homes is an extremely fun process, even if they’re less than desirable at the start. It’s hard to ignore all of the potential these properties have while touring. However, that does not mean locating a fixer-upper is an easy process. So the question is, how do you find properties to flip?
Of course, you can keep an eye out while you’re driving around and hope you cross paths with a “for sale” sign. However, this method is outdated and yields few positive results. If you’re working with an agent, they’ll be able to find properties early on via the MLS or Multiple Listing Service. With the “new” filter, they, or you, can wake up daily and see which properties have just gone in line the day of.
You might also consider asking an agent you have developed a relationship with to keep you in mind any time they come across an investment opportunity. Depending on the agent’s motivation, they may even inquire about off-market transactions if they know of a seller who is interested in making a sale in the near future.
Also, don’t forget to check on websites like Zillow, where FSBOs, For Sale By Owners, post their properties for sale. Because these homes are not listed by an agent, they will not show up in the MLS and may be hard to come by. So there are a few options available for locating properties. The key is being swift and crafting strong offers to win over sellers and make the investment property yours.
What Properties are the Best for Flipping?
The best properties for flipping are ones that are located in highly desirable neighborhoods. Even if a house is extremely worn down, it is deemed worthy. As long as it occupies space in a great neighborhood, there is massive profit potential there. Oftentimes this can be a property in a revitalized part of town or an old home on a small town’s adorable main street that is in the same condition as when it was built.
So long as the home’s bones, structure, and foundation are good, it can be flipped to cater to what the new generation wants in a home. Because young families are looking for modern homes in classic neighborhoods, they’re more than willing to pay the price, even if triple the price of the home’s original worth.
Do You Need To Be A Real Estate Agent To Become A House Flipper?
You do not need to become a real estate agent to be a house flipper. Though there is much debate on whether you should have a real estate license to flip homes, there is no requirement to have a license before breaking into the flipping industry.
With that being said, having a real estate license will only help you with flipping, never hurt. However, there are numerous benefits to having your license, such as having an insider perspective of how the market is behaving. You might also find it easier to make a good offer, and you’ll be able to look after your best interests as a flipper via your real estate professional background.
A real estate license will also keep you connected to your local real estate professional network. As such, you may be privy to off-market opportunities, which will help you avoid competition amongst other agents, investors, and the typical buyer represented by an agent.
While having a real estate license can be a major plus, there are other ways to reap similar benefits without going through the licensing process. For example, positioning yourself as an investor always on the lookout for a property means real estate agents will keep an eye out for you. Since they know you’re a motivated buyer, it will be like a second set of eyes constantly on the lookout for investment properties for you. The best of both worlds!
How Much Does The Average House Flipper Make?
House flipper’s income will depend on each property and the margin of profit. Some properties will offer slimmer profit margins, while others may result in big paydays. It is all dependent on factors that vary depending on the current market, motivation of the seller, and issues with the home.
Dry rot, insect infestation, mold issues, and serious problems with the property’s integrity may cost more than budgeted for, and you’ll be stuck with a smaller profit.
On average, a house flipper can expect to make $25,000 per house flip. Most flippers might sell their home at a 40% profit but often only see 10-15% of that profit after all expenses are paid.
It’s important to keep in mind the expensive costs associated with purchasing, selling, realtor fees, repairs, and more. All of these things eat into your final profit.
Can You Really Flip Houses With No Money?
There are ways to flip homes without money upfront, but there is truly no way that will completely absolve you from paying for the purchase of the home and rehabilitation. Your options, if you do not have cash, include loans from private or hard lenders. You can also look into wholesaling, using home equity, crowdfunding, and seller financing.
If you have a small amount of money but not enough to cover the entire home purchase, especially if you’re just beginning with house flipping, try partnering with an already established investor or team.
What Degree Do You Need To Become A House Flipper?
You don’t need a degree to be a house flipper, which makes this business accessible if you have a pretty strong cash reserve, that is. Instead of an education that leads to a degree, you might consider a real estate license to help ease the process of purchasing.
Any other specialty you’re educated or experienced in may help to cut costs and make the process of flipping a bit easier. For example, if you’re a licensed electrician, plumber, or landscaper, you can perform a share of the work and keep more of the profit for yourself.
Any time you take on more of the hands-on work, you will be saving money because you are not outsourcing labor. So, if there are any quick certifications or skills you’d like to brush up on to help preserve costs, make sure to look into that option.
What Is The 70% Rule In House Flipping?
The 70% rule says that the flipper(s) should not pay more than 70% of the property’s market value after repairs when it comes to house flipping. This figure is known as the after-repair value (ARV). An easy example of this is a home with an ARV of $100,000, which needs $10,000 in repairs. Using the 70% rule, the house flipper/investor should not purchase the home for more than $60,000.
The equation to figure this is [$ price of home] x 0.70 = [$ answer] – [$ cost of repairs] = [$ answer – ARV]
How Do You Estimate Profit When Flipping Homes?
Knowing the exact profit of a flipped home is difficult given that so many factors can change and things can go wrong. However, it is possible to have a general idea at the forefront of a project. Just make sure you don’t get too attached to that initial number, or you may find yourself let down at the end of the flip.
A simple equation is to determine the project’s revenues and expenses. A flipped home’s revenue will be the intended listing price after all remodels are done. Keep in mind that the usual resale value will be nearly 40% higher than the original. You should have a running list of expenses from the get-go, including labor and material charges. Once each figure has been calculated, subtract the expenses from the revenue for your profit amount.
A more in-depth calculation may be:
[$ resale value] – [$ purchasing price] – [$ reparations cost] – [$ buying costs (closing, title transfer, etc.)] – [$ holding costs] – [$ financing costs (interest fees if not cash)] – [$ selling costs (commission fees, etc.)]Should You Start A House Flipping Business?
If you have the means to do so and an abundance of patience, starting a house-flipping business can be extremely beneficial. Not only profit-wise but also by way of creating better, higher-quality neighborhoods, sometimes the very neighborhood you reside in.
Take some time before diving into house flipping to do some thorough research. Ensure that a delayed profit will be okay given your personal financials. It also wouldn’t hurt to connect with other local flippers to see what they’re doing and potentially join in with them on a project or two to get a sense of the process. You’ll find some more in-depth steps on how to best prepare for house flipping below.
Is House Flipping Just for Wealthy Investors?
Contrary to popular belief, house flipping is not just for a wealthy older generation or real estate professionals. House flipping is actually a great business for young people as well. In fact, there is a growing movement for those under thirty to get involved in house flipping as it has become clear just how profitable the business is.
Anyone with spare income or savings that they’re looking to invest in can get started in the business. Another option is to join an investment team or group that works on pooling money together to flip.
What Happens After I’ve Successfully Bid on a Property?
If your offer was accepted on a home, there are a few next steps you’ll want to take, and your real estate agent or mentoring program may be able to guide you. Steps include obtaining necessary permits to complete the necessary work and paying the electric and water fees to make the home operational during the remodel,
From there, you will be able to have local businesses bid on the work and select a company to use for individual tasks. Some general contractors may be able to do most of the work. However, you may find yourself reaching out to carpeting professionals, landscapers, garage door companies, tree removal services, and more separately.
Though tedious, the work will pay off significantly in the end with a great accomplishment and hefty profit under your belt and in your portfolio. The process to become a house flipper isn’t a simple one, but not easy. However, you will reap great rewards after diving into the business.