Have you been known to waste away in front of house flipping shows? Do you get dollar signs in your eyes when you imagine buying a house, renovating it, and reselling it for a nice profit margin?
For the savvy investor, there’s certainly money to be made. The average gross profit on a house flip in 2019 was almost $63,000, which certainly sounds like a nice payday.
But is it really as easy to fix and flip a home as it looks in reality TV shows? Most importantly, are you ready to enter the world of house flipping yourself?
Here are six things to consider before you attempt to flip a house.
1. Be 100% Committed to House Flipping
First of all, you have to look at house flipping for what it really is — a business endeavor. You’ll be spending a lot of time, money, and energy on this project, and it will have a major impact (positive or negative) on your financial future.
All too often, people approach house flipping as a “get rich quick” scheme. Others view it as a passive hobby to do in their spare time. Both of these mindsets will get you in over your head — fast.
It’s possible to make a lot of money flipping houses, but you won’t make a fortune overnight. House flipping involves playing the long game, so you have to be ready for the investment of time and money.
If you can say with confidence that you’re committed to the realities of house flipping (not just the reality-TV version), move on to the next step.
2. Research, Research, Research
The fix-and-flip process involves a huge learning curve. From how to find income properties to securing financing to local market research, you have a lot of homework to do!
Start by educating yourself beyond those flashy TV shows. Read books and industry magazines. Sign up for a house flipping boot camp. Attend a weekend workshop and network with those who have successfully started flipping houses in your area.
Next, make sure you understand the math. This is the number one element that will make or break your flipping efforts. You need to know exactly how much you can afford to invest and how much work you can afford to put into the property.
If you underestimate either of these things, you’ll be lucky to break even — let alone make a profit!
Finally, learn as much as you can about your local housing market. How much are homes in the area selling for, and how quickly are they selling? Which neighborhoods are “hot” and which ones seem stagnant?
3. Arrange Fix and Flip Financing
Buying a house is exciting, but how will you pay for it? Fix and flip investors generally use one of these four options:
- Pay for the property in cash
- Conventional bank loans
- Home equity loans from an existing property
- Private loans from hard money lenders
Once you know how you’ll pay for the house, it’s time to partner with a local real estate agent. They can open doors (quite literally) that you can’t. By tapping into their wealth of knowledge about the local market, you can find deals and offers you may not have found on your own.
4. Understand & Begin the Buying Process
Ideally, you know the exact amount you can afford to pay for a house to flip. You should also have a general idea of the size and type of home you want to buy.
Set up automatic notifications with your realtor so you’ll know instantly when a suitable house hits the market. You can also search online or do it the old-fashioned way and drive around to look for “For Sale” signs. It may take a few days or a few months, but eventually you’ll find a home to put an offer on.
Pro tip: Don’t let emotions get the better of you! Stick to your numbers and don’t buy more house than you can afford to fix and flip.
5. Prepare for Fixing a House
Once your offer has been accepted and you’re under contract, it’s time to get your ducks in a row. Having everything in place means you can get right to work as soon as you get the keys.
If you haven’t already done so, start with a professional home inspection. This will reveal any potentially serious problems with the place that could make you think twice about buying it.
Next, make a list of everything you need to do to fix and flip the property. Get your team of contractors lined up and standing by so they can begin working as soon as you finish closing.
6. Flip a House & Resell
Unless you’ve hired a project manager, it’s up to you to oversee the project and ensure the contractors are getting things done. You also need to keep track of all the financials, from utility bills to contractor bids to receipts for supplies.
Once every item is ticked off your final punch list, it’s time to stage the property and get it ready for resale. Enlist the help of a real estate agent to get the home listed on the MLS network for maximum exposure.
Hopefully you’ll get some great offers flooding in! If it takes longer than expected, try to be patient. You may not get as much as you’d hoped, but you should at least break even from your endeavor.
Remember: Everything is a learning process. If you make less than you bargained for, you’ve learned a lot of valuable lessons you can use for future house flipping attempts.
Ready to Start House Flipping in Your City?
Buying a house to fix and flip can be an exciting (and lucrative) endeavor.
However, it’s not without its risks. Before you begin the buying process, make sure you’re fully committed to the idea. Secure the financing you need and make a plan to buy, fix, and resell the house.
With a solid plan in place, there’s no reason you can’t be successful in the world of house flipping!
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