How to Flip a House to Make Profit


The buying and selling of property to build profit or House Flipping is a great way to get started. Over the past few years house flipping has become widely popular in the world of real-estate investments.

How do you go about flipping a house? You need to look at several different aspects when flipping. Here are a few things to consider.

  • Financials needed to buy and flip the house
  • Contractor to do the rehab
  • How much to rehab
  • How much to buy a house for
  • What can you buy a house for cheaply
  • You need to then sell for a profit

These are the basics of what you need to look at when deciding to flip a house.

House flipping is to seek homes that most buyers would overlook due to the rehab and renovations that are needed. The investor flipping the house would then make the needed changes to add more value to the home to reach proper buyer demand for reselling. Simply put, buyers would rather purchase ready-to-move-in homes over a fixer-upper.

But, Flipping Houses may be a little more complicated than it sounds as there are pros and cons to the process as with any profit-making business move, but as a dedicated investor, it could become a very successful venture.

One of the most frequently asked questions is would a house flip be a good investment, and truly there is no right or wrong answer. Everything depends on you if flipping a house is worth it. While flipping a house it could turn out to be a great investment, it is also possible to lose money if you don’t do this right.

However, knowing the necessary steps to the process of house flipping and making wise investments will increase the probability of a great outcome.

If you’re reading this, you’re probably interested in house flipping and would like to know the essential Keys you need to take to get yourself started. This will discuss the needed steps and also things to avoid while House Flipping.

Research

When researching, you can use the internet to your advantage but you may also have to do some groundwork! You must know the product you are investing in, the value of the product and most of all know your target market. i.e. researching geographical area. You must also calculate your budget and what you can afford as you wouldn’t want to begin with houses that are selling for $500,000 when you only afford buying homes under $200,000. Researching properties within your investment range will allow you to provide more quality renovations for reselling. 

Create a plan

In this step is where you put all of your research and finances together to actually create a plan to start your venture into House Flipping! Here is where you may decide if YOU want to invest or if you’d rather opt for an Investor (there are also ways to flip homes with NO MONEY). Before looking for investors you should have an idea of the amount you would like to invest in the property. If the financial status is an issue for you, you may be interested in finding a partner with money to invest, and split profit shares in the result of a successful flip.

Finding business partners is our next essential Key.

Put together a crew                                                  

The biggest part of house flipping is taking a home most people wouldn’t buy and renovating it to resell. You want to be sure that you have a team who is skilled in specific areas to assure quality rehabilitation.

Most homes that house flippers seek are homes that are often overlooked by the buyer because they don’t want to put in the work to fix the home. A house flippers duty is to fix the house up so that it is more appealing to sell.

Gather a great team of:

  • Painters
  • Carpenters
  • Roofers
  • Electrical contractors
  • Drywall
  • Siding team
  • Window installer
  • General Contractor
  • Landscaper
  • Concrete
  • Basement
  • Plumber

Get an accountant or you track your own finances and it would also be important to keep in touch with insurance specialists plus realtor. I would definitely use an accountant at the end of the year to help with all the tax details on flipping homes. A great team will make the chances of a successful flip much higher.

Find a house to flip

This is the step where the research you gathered comes into play! You’ll need to find a vacant, undervalued, dull property and bring it to life utilizing the team you built.

With rates of foreclosures decreasing in recent years, finding houses to flip could be difficult. However, once you know where to look it becomes simpler.

When you have your team set up and ready to work, the first step you need to take is to search for distressed houses or property the owners have left abandoned.

You can also look for those people who have stayed in their homes for a long time and they may feel that they can’t remodel the house but want to move. You can work with a real estate agent to find for you distressed houses in the neighborhoods you want to go into.

You can also network with many different real estate agents because they may have deals come through their desk that is too good to pass up. If they know you pay cash and close quickly then they may send deals your way before anyone else gets to bid or see them.

Some ways of finding a property to flip include:

  • Keeping an eye out for anyone looking to sell their property
  • Make signs of your own expressing your desire to buy unwanted property and post in highly populated areas (i.e. Poles along Main Roads)
  • Contact the owners of abandoned homes
  • Search for the most undervalued home in a good area
  • Always be sure to see a home in person as opposed to only searching the web!
  • Auctions you can go to for great deals just make sure you know what you are doing
  • Bank owned homes that is how I got the home I live in now super cheap
  • People who sell properties tors on a wholesale basis

One might search for a property that is a “quick fixer-upper”, or a home with no more than cosmetic fixes because flipping houses the key is quickly selling the property after renovations. You want to make sure you are making smart investments when it comes to big renovations, and also look at small ones that can be quick hitters such as just painting, landscaping, and maybe new flooring.

It is recommended to use an experienced Real Estate Agent when reselling the property as they can advise you based on what homes are selling for in that area. This is unless you have your real estate license and can sell the house on your own which will add to your profit.

Buying the homes

When you find a distressed home and have done the walkthrough with your contractor and inspector, then time to buy. You need to have everything lined up from financing to inspections. These homes do not sit long in today’s environment.

If you do not have everything lined up you will have a seasoned investor swoop in to offer all cash and close in 5 days. Poof, your house is gone and then you have to find another one.

  • Have a contractor lined up
  • If you are not a realtor then get one to represent you, not any realtor one that knows about investing
  • Have a title company ready just in case the seller does not have one
  • Financing needs to be ready to go
  • When locked in on the deal and get a closing date to have a contractor ready to go in on the first-day house becomes yours

Selling the house

It is recommended to use an experienced Real Estate Agent when reselling the property as they can advise you based on what homes are selling for in that area. This is unless you have your real estate license and can sell the house on your own which will add to your profit.

What do you do:

  • Do final inspections
  • A few weeks before finished start pre-marketing to agents in the area
  • Pictures need to look incredible
  • You may have to stage the home to get top dollar but is not always necessary, this is a judgment call
  • Get the word out on the first open house
  • Make sure place is inviting
  • Get the house sold
  • Put the profit in the bank
  • Move on to the next flip

Make a profit

After you have researched the plan, created the plan and executed the plan, it is now time to put your newly renovated property back on the market. If you chose to utilize a Real Estate Specialist, then this is time to use them. They know the ins and outs of the business and can be a huge help in a successful endeavor.

You make your profit when you buy the house. If you buy at the wrong price and miscalculate the rehab cost then you will be in for a financial roller coaster ride.

Take the profit and roll it into the next home. You continue this process and hopefully, you are flipping a house or two a month.

Financing

Cash on hand would be the best route to buy a house to flip, because simply put, using a credit card or hard to pay for renovations may be more risk than its worth if by chance the property does not sell as quickly as hoped for. If cash on hand isn’t available there are other options such as loans buyers can opt for, however, additional research on interest rates will need to be done for different loans to know what will work for you. 

You can check out our article on financing and how to get money to flip homes.

70 rule

There is a rule known as ‘The 70 percent rule or the 70 rule’ that is used as a way to determine the price and pay for a house flip that will make you money.  This rule states that the investor should pay 70% of the After Repair Value (ARV) of a property minus the repairs needed ( 70% * ARV – Repairs) the ARV is what the home will be worth after repairs are made. Now, the 70 percent rule is optional, however, it gives real estate investors a general idea of the profit that will be made from a flip. 

This article we have 70 rule that will go into more detail.

Common Mistakes

A few common mistakes real estate investors make when flipping homes include things like not being prepared with finances, time, or skill/knowledge.

  1. Buying High – You need to buy the house low to make sure you can make enough profit after rehabbing and then selling it. Do not get attached to homes if the numbers do not work then do not buy the house.
  2. Estimate Rehabbing Incorrectly – If you did not calculate the cost of rehabbing the house correctly then profit starts to leave your wallet. You have to get really good estimates and find out if anything major is wrong with the home. If you miss things then profit starts seeping out of your pocket.
  3. Too Much Time – You need to get the rehab done and not let it drag out. The longer the rehab goes the higher your holding cost and finance costs. You should flip properties quickly like in one to 3 months tops.
  4. Estimated Resell Price Wrong – If you think the area prices were higher then they are and you try to sell for a price that is too high for the area, good luck. You will eventually have to drop the price to sell and there goes profit. Make sure you know what homes are selling for in the area.

These are the top 4 main mistakes that can be made. There are many more but if you can avoid these four you will be in really good shape to deal with whatever comes your way when flipping homes.

Like with any process, it has to be pursued with a serious mindset to business. It is easy to lose focus of a project at hand, but when it comes to flipping homes if you lose focus or lack knowledge, you could lose a lot of money.

Expensive

House flipping is an expensive endeavor and having the funds is one of the most important parts. As stated before, it is possible to participate in house flipping with little to no money down, however it is more commonly done by having a set budget and funds from either money saved up, or a loan with interest’s rates. It is best to make sure you are properly equipped financially before deciding, as it could be more trouble for you than it is worth.

Time to flip a house

The process of house flipping can be time-consuming, which comes back to focus is very important. The labor could possibly take months to complete, while also adding time to sell the home. The point of house flipping is to fix up the home and quickly resell to keep value, therefore consistency will be needed to ensure successful completion of the renovation, so if you cannot be involved in the process as much as your involvement is needed, it may not be the path for you.

Knowledge flipping homes

Lack of skill or knowledge and lack of desire to learn ultimately hurts anyone shifting into this field. You will need to do the necessary research and hire the best people to get the job done. This field requires different skills sets and levels for different areas and it is impossible to work alone. A team of professional builders, painters, plumbers, carpenters, etc. are needed to ensure successful renovations and a successful flip.

Managing contractors

You have to manage the work the contractors are doing. The work has to be great because sloppy work will make it harder to sell and may cost you in profit. You also need to be ready to manage issues that come up either with the home or with the contractors doing the work.

That is why having a system set up to cover every aspect of the process is key. The system will allow you to ramp up from one home every 3 months to 5 homes every 3 months.

You need to have several contractors lined up if something happens to your main contractor. You will have to fire or get rid of a contractor at some point when rehabbing the home. You need to have a back up to every contractor you hire.

You need to have a contract with each contractor. Each one will also have a scope of work laid out on a work order. Everything that contractor is doing and how you want it done needs to be on that contract and work orders. Any changes must be made on a request for change that can only be signed off by you. No RFC and the contractor makes a change then you do not have to pay them because you did not authorize the work.

Ramping up the flip process

Just take a minute to look at the numbers depending on where you live.

  • 4 homes a year at $20,000 profit each home is $80,000
  • 20 homes a year at $20,000 profit each home is $400,000
  • 4 homes a year at $40,000 profit each home is $160,000
  • 20 homes a year at $40,000 profit each home is $800,000

Do you see how increasing the profit each home and doing more homes can significantly raise your income? You have to do your first home to see if you like this type of work and to see if you are good at it. Once you have the first home then do another home. This is how you slowly 3 or 4 homes a month that your crews are working on at one time.

You will have to get a system set up to really ramp up flipping homes. The system needs to be a well-oiled machine that you do not veer from when it is set up.

  • Have your team lined up
  • Have standard contracts and agreements in place and use them
  • Try to keep the same contractors because they will get used to you and the work you expect. If you can’t always use the same contractors it is OK just not as efficient
  • Always buy a home based on numbers not because you emotionally like it
  • Know your numbers
  • Calculate lead times and put it in your schedule
  • Have a schedule so contractors know when they have to be there, some work is dependent on other work getting done
  • If there is a problem deal with it quickly and make decisions

Conclusion

The best chance you have at becoming a successful house flipper is to utilize all of the tools and resources available to you and never be afraid to ask for help, especially if you want to make a decent profit off of homes you flip after all the profit is where the money is made.

You can also check out the course we recommend that walks you through a step-by-step system to flip houses.

If you avoid these common mistakes and follow these keys to help guide you along the journey, you will be flipping homes in no time.

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