It sounds like an effective way to make money, but there are many things to consider.
You can only earn a profit from house-flipping when you know what you’re doing. A lack of knowledge could actually cost you a few thousand dollars. Fortunately, it’s not all too complicated to get started. Here’s a guide to help you determine whether you’re ready to start.
The Potential Risks of House-Flipping
TV shows might make house-flipping seem simple. You buy a home for $90,000, hire a team of contractors, and sell the place for $200,000. Those episodes don’t dive into what happens behind the scenes. There’s a lot more you have to tackle beforehand.
A big part of house-flipping is choosing the right location. The real estate market fluctuates throughout the country, so you might find that your state isn’t the best for doing this. That doesn’t mean you should quit this project altogether, but it’s something to consider.
The neighborhood you pick within that location matters, too. You have to think about things like crime rates, school districts, and noise levels. If you can’t sell the home, you won’t make much money back. Looking at parts of town that seem like they’re “coming up” is smart. Buying a home in a terrible location is a house flipping mistake that happens to many novice real estate investors.
Your Budget is Critical
People often underestimate the amount of capital that goes into house-flipping. You need a significant budget to support your endeavors. The initial cost of buying the home is obvious, but you need to consider labor, materials, emergencies, and more. This money will be required upfront, as well. You'll need to have good credit scores and a sound income for lenders to finance your projects.
The easiest avenue is to pay for everything with cash. If you don’t have thousands in the bank, you can always pursue financing. In fact, 40.5% of house-flippers take out a loan to pay for certain parts of the project. Getting partners to chip in money can also be helpful.
Do You Have The Necessary Skills For House Flipping?
There’s no denying that house-flipping takes skill. If you have enough cash flow, you can always hire a team to do the work for you. That said, it’s going to be cheaper — and more lucrative — to put in sweat equity rather than pay someone else. You’ll recoup the most money by doing the work yourself.
That doesn’t mean you can’t or shouldn’t pay contractors for help. For example, you can get a 97.5% ROI by installing a new garage door. However, that work is going to require professional service. A balance between DIY and expert assistance will be the best way to keep costs low while staying safe.
How to Start Flipping Houses
If you’ve determined that you can confidently mitigate the risks of house-flipping, you’ll want to consider your next steps. Keep in mind that the process requires time. It’s going to take at least a few months to find, repair, and sell your chosen property. Rushing will only lead to mistakes.
1. Get Enough Money Together
This step is probably the most essential part of house-flipping. That’s why it’s first. If you don’t have enough cash, you won’t be able to proceed. Take stock of your financial situation to see whether you need help in the form of a loan or partners. This moment is an excellent chance to assess your credit situation, as well.
2. Build a Team
You can’t flip a house by yourself. You might be good at the renovation side of things, but you might not know much about the local real estate market. Therefore, you need to build a team to help you work from start to finish. A strong house-flipping crew might include:
Real estate agents
These folks are part of your real estate team who can assist you in navigating house-flipping. Be sure to assess how much it’ll cost to hire these individuals. There’s a chance you’ll need to adjust your budget accordingly.
3. Look for Appropriate Houses
It’s now time to find a great house. It would be best if you tried finding a suitable location rather than looking at individual homes. This tactic will ensure you’re buying something you can later sell. You don’t want to end up with something that proves to be a problem.
The best kinds of houses for flipping are ones you can buy cheaply and repair quickly. That’s the point, right? If you’re unsure where to start, you should consider working with real estate agents. You can also ask friends who’ve tried house-flipping for their opinions.
If you think you’ve found a winner, you need to calculate the after-repair value. This math will help you determine whether it’s worth the time and effort to purchase that property. The end result will show you what your profit will look like.
4. Start the Renovation Process
Are you ready to start? If so, you should do so promptly. Time is of the essence when flipping houses. You don’t want your project to drag on for months because you’ll lose money. The same thing applies when the property stays up for sale for too long.
It’s important to remember that this process will take commitment. You need to manage everything that happens tightly. If you or your contractors fall behind, you’re losing money. You also need to stick to a strict budget. Spending more than you can afford means you’re earning less of a profit later.
Now’s the part where house-flipping can get stressful. If you’re not prepared to put a lot of energy into this process, you might want to wait until you can. A house-flipping job can only be successful when you’re fully present.
Consider These Tips Before You Start House-Flipping
Flipping houses can be a great way to venture into real estate investing. There’s real potential to earn a significant profit in a seemingly short amount of time. That said, it’s crucial to get everything right before you start. By finding the best property, assembling a helpful team, and making renovations that count, you shouldn’t run into any trouble.
About the author: Rose Morrison wrote the article above on house flipping. Rose is a home improvement and real estate writer. She is also the managing editor of Renovated.