One effective way an investor can make money in real estate in 2020 is by learning how to flip a house. Flipping houses is a real estate investment strategy that involves renovating distressed properties to give them a new look and selling them for a profit. House flippers take on houses whose owners are unable or unwilling to renovate and make improvements on them so that they meet buyer demand.
There are many people who are flipping houses for a living and making a good profit. The trick is usually to buy low and sell high in a relatively short amount of time. When done right, flipping a house can be a great real estate investment. In a relatively short period of time, you can buy a house, make smart renovations, and sell it for much more than you bought it for.
However, home flipping is not as easy as it looks on TV. There are also many risks involved. You can lose money if you don’t grasp how to flip houses. Diving into the industry without enough knowledge in the house flipping process can result in huge financial loss and stress. A lot of work is involved. So, if you’re wondering “How do I start flipping houses in 2020?”, here is a step-by-step guide to flipping houses for beginners:
The 6 Steps for How to Flip a House
1. Have a Business Plan
The first step for how to flip a house is to create a business plan and a budget. Like any other business, you need to have a business plan in place to keep on track. It doesn’t have to be fancy and complicated but it has to include a budget, project scope, and timeline. And while it may seem counterintuitive to budget before finding a house to flip, the last thing you want is to find a potentially profitable house, only to discover that you really can’t afford to fix it up. You should have a basic budget so that you only shop for investment properties that fit your financial capability. You can refine your budget afterward after picking a house.
To set up a budget, you need to know how much the house flipping project will cost you. But how much money do you need to flip a house? Well, along with the cost of the house, you should also take into account the costs associated with flipping the house. This includes the cost of hiring contractors, buying materials, insurance, utilities, and marketing. Do some real estate market research and talk to a few professionals to get cost estimates.
Setting a timeline for your project is also crucial. How long does it take to flip a house? Just like the budget, the timeline of your project will vary. When setting your project timeline, just make sure you give yourself enough time to make the necessary repairs and renovations. Nevertheless, on average, it should take you between 4 to 6 months.
2. Get Your Finances in Order
The second step on how to flip a house is to get your finances in order. House flipping will always require a financial investment regardless of how small the house is and how minor the renovations are. To successfully flip a house, you need to line up financing early enough even before making an offer. The last thing you want is to find a great real estate deal and not be able to come up with the money. For beginners, it’s best if you research the different financing options you have and weigh the advantages and disadvantages of each.
If you want to start flipping houses but lack the cash to do it on your own, you should learn how to flip houses with no money. Flipping houses with no money down is entirely possible. There are many loans for flipping houses that you can explore such as private money loans, hard money loans, business lines of credit, and home equity loans. When comparing different loans, pay attention to interest rates and other loan requirements. Apart from fix and flip loans, you can also obtain financing for flipping houses through seller financing, wholesaling, or partnering with other real estate investors.
Related: Here Is Your Guide to Investment Property Financing
3. Find the Right House to Flip
Another important part of learning how to flip a house is knowing how to find a house to flip. Not every property for sale will make for a good flip. Making money flipping houses boils down to the kind of investment property you buy. Successful house flippers are always keen on what house they choose to invest in.
There are some factors you have to consider when looking for a house to flip:
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A Great Location
Location is an important factor to consider when buying a house to flip. Homebuyers often want to live in neighborhoods with good infrastructure, shopping centers, schools, hospitals, a good job market, a low crime rate, etc. Check the neighborhood where the property is located and make sure it fits your budget and real estate investment criteria.
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Below Market Value
To find a good deal for home flipping, you should look for a house that is priced below market value. Buying distressed property like foreclosures and short sales will allow you to afford a house with less financial capital depending on your budget. Therefore, you will save some money to pay for the necessary renovations. One way to know if a house is below market value is by checking the real estate comps.
Related: How to Find Real Estate Comps in 2020
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Sound Condition
When looking for a house to flip, make sure it is structurally sound, especially if you are buying an older house. If you are looking to flip a house for the first time, you should focus on properties that require only minor inexpensive repairs and updates that will increase the selling price of the property. Avoid houses that have structural problems and need major repairs like rewiring and roof replacement. Such updates will need a lot of cash and time to complete before selling. It’s important that you know which repairs you can afford to make and those that you can’t. Any nasty surprises can ruin you financially. Consider hiring a home inspector to estimate the cost of remodeling the house.
So, how do you figure out which one is a good deal based on the cost of repairs? Many experienced real estate investors follow the 70% rule in house flipping to determine the maximum purchase price to offer for a fix and flip real estate. The rule states that an investor should pay 70% of the ARV (after repair value) of a property minus the cost of the repairs needed. While you shouldn’t buy a house and flip it only based on this rule, it serves as a simple framework when evaluating potential deals.
To find the best ARV real estate, you will have to look at multiple houses for sale. Some of the common strategies used to find below market value deals on houses to flip include working with a real estate agent, direct mail marketing, scouring the MLS, and networking. However, the easiest and fastest way to search for and analyze investment properties for sale to flip is through the Mashvisor Property Marketplace.
The Mashvisor Property Marketplace
Start your search for investment properties in the Mashvisor Property Marketplace now.
4. Hire Reputable Contractors
Unless you have the skills to handle the renovations and repairs on your own, it is advisable that you hire trusted professionals to do the work for you. This includes general contractors, plumbers, painters, electricians, roofers, etc. An important part of learning how to flip a house is networking with contractors. Some contractors have full teams that can handle all areas of the house upgrade. When looking for contractors to hire, be sure to check their licenses and references. Also, make sure they can meet your timeline and that their quotes fit your budget.
Related: 5 Tricks to Save on Fix-And-Flips
5. Renovate the House
Once you have found the right contractors, it’s time to start renovating the house. As you begin to work, keep in mind that you will be paying interest and other carrying costs like insurance, taxes, and utilities every month. Therefore, you need to complete the renovation project as fast as possible, sell the house, and pay off your loan. This means that you need to find contractors who can do quality work quickly. Focus on inexpensive updates that offer a lot of value such as adding more cabinets, repainting, and adding new doors.
6. Sell the House
The final step on how to flip a house is putting it up for sale. A realtor will be invaluable during the selling process. A real estate agent with knowledge of the local housing market can help you price the house correctly and market the house to the right buyers. Nevertheless, it’s also important that you understand the fundamentals of real estate pricing and how to sell a property.
The Bottom Line
Buying and flipping houses is a great way to make money in real estate. However, with the high risks involved, make sure you first fully understand how to flip a house to avoid losing money. You need enough preparation and the right team before you get started flipping houses. If you are considering starting a house flipping business in 2020, just start taking by the steps outlined in this guide.