Big TV shows and YouTube channels have glamorized home flipping. The profits seem big and the process seems easy.
Unlike what you see on TV though, flipping homes in the current real estate housing market requires careful planning and budgeting. In this article, we’ll look at strategies you can leverage to flip homes for profit, even in a down market.
- Is House Flipping Profitable in 2023? Yes! If you get the basics right, flipping homes in 2023 is easier than flipping homes in 2021’s competitive market.
- You Make Money When You Buy Your Flip: Stick to the home flipper’s 70% rule. Buy in a good location. And make sure to inspect the property thoroughly before purchasing.
- Don’t Cut Corners in the Rehab: Replace that leaky roof and install a new HVAC. Pull permits and build to codes. And stay within budget.
- Don’t Pay Full Realtor Commission When Selling: Every successful home flipper we know saves thousands on agent commissions by selling via a Flat Fee MLS service.
What Does Flipping Houses Mean?
Flipping is a strategy where an investor purchases a property to renovate it and sell it for a profit. The house to be flipped is a short-term real estate investment. The goal is to hold on to it for only as long as it takes you to rehab it. And then list it and sell it!
Home flippers will buy homes from the MLS. But they will also buy cheap homes such as distressed, off-market, and inherited properties to fix and flip. Flippers then make repairs and resell them on the open market. These repairs can be major structural repairs or minor cosmetic repairs.
Successful home flippers have two things in common:
- They Buy Properties at a Discount: Home flippers buy properties to rehab at a significant discount, oftentimes 30% to 70% off the property’s market value.
- They Save on Commissions When Selling: They list on MLS for a small flat fee and save thousands of dollars in real estate agent commissions.
Is Flipping Houses Profitable?
Yes! According to ATTOM Data Solutions, home flippers made 26.9% profit in 2022, despite the fact that they were selling in a down market.
Most experts are predicting a real estate market crash in 2023. A smart home flipper will see this market as an opportunity to buy homes for cheap and make a profit.
Pros and Cons of Flipping Houses
✅ Pros of Flipping Houses
- Great Profit Margins: You can make thousands, if not tens of thousands of dollars when flipping a home. Successful home flippers make more than 26.9% profit on flips.
- Convert Sweat Equity to Real Equity: Flipping a house is a crash course in all things real estate. You’ll learn how to fix things inside the house – make small to medium-sized repairs, and add value by updating flooring, colors, and tiles.
- You Can Do it Part-Time: Contrary to popular wisdom, you can absolutely flip houses on the side. You can work on the flip on nights and weekends. If it is not a major project, you can complete it in a few months.
❌ Cons of Flipping Houses
- Your Flip Could Turn into a Money-pit: If you don’t inspect the flip thoroughly before purchasing, you may miss major issues. Structural issues, water damage, mold, electrical problems, roof leaks, plumbing, HVAC, and grading are all issues that can cost a lot to fix.
- Pricey Labor Costs: Repairs beyond your skill set will require you to pay other professionals to come and fix them. Electrical, plumbing, roofing, and structural jobs can be expensive.
- Your Money is Tied Up: If you’ve purchased your flip with your own money, it’s important to sell it fast. The longer you hold the flip, the more expensive it will become. Property taxes, utilities, maintenance, and HOA (if applicable) can add up quickly. This is especially true if you have financed your flip – the additional interest payments can kill your profitability.
» Pros and Cons of Flipping Houses: If you’re smart, the benefits of flipping a house far outweigh the cons!
How to Flip a House: 7 Tips for Flipping Houses Like a Pro
We have invested thousands of hours working with home flippers. Here are the 7 best tips for flipping houses they taught us.
1. Location Location Location
Location is the single most important consideration when investigating a flip. A good location can boost the sale price of your renovated home. But a neighborhood with a high crime rate will discourage buyers.
Look for a property in a great neighborhood close to grocery stores, playgrounds, hospitals, schools, etc. Also, make sure that the property is close to where you live. That way, you’ll be able to easily oversee the progress at your flip.
2. Inspect Before Purchase
Hire a home inspector to help you identify major and minor issues in the house. Houses with faulty structures will be expensive to fix and sell. Other things to inspect are plumbing, electrical, roofing, HVAC, foundation, and grading.
If the home inspection report identifies any major issues, make sure to get a repair estimate and budget that cost in your flip accounting. If the repair estimates exceed your budget, then negotiate the sale price with the seller or find another home to flip.
» How Much Does a Home Inspection Cost: Home inspection is absolutely critical for flippers. Learn how much it’ll cost.
3. Stick to the Home Flipper’s 70% Rule
When purchasing a home to flip, do not pay more than 70% of the property’s After Repair Value (ARV) excluding the rehab costs during purchase.
✍️ The Home Flipper’s 70% Rule
Professional flippers swear by the 70% Rule. The rule states that you should only pay 70% of the After Repair Value of the home, minus the rehab costs.
70% Rule Formula: Your Purchase Price = After Repair Value x 0.70 – Rehab Costs
Let’s take an example. Let’s assume the rehab cost estimate is $30,000. So, how much should you pay for a home that you expect to sell for $500,000.
Your Purchase Price = $500,000 x 0.70 – $30,000 = $320,000
4. Fund Your Flip
The average expense to fix a house is between $17,900 – $78,560. It is vital to ensure you are funding the flip fully. If you don’t have your own funds, finalize a source of funding to ensure you don’t have to stop mid-way.
Did you know you can flip a home with no money? Hard money lenders and private investors will fund your flip if you find a great deal. Some small business lenders also help fund flips. If you are unsure whom to ask for help, then mortgage brokers may be able to help you identify the right lender.
5. Buy a House to Flip
After you secure funds, buy a house to repair and sell. Your profits at the end of the flip greatly depend on the price you pay to buy the home. If you purchase a cheap house in a bad locality you may suffer a significant loss. But a house in a desirable location or neighborhood will maximize your flipping profits.
Look for investment properties that are accessible to you, or find homes listed on the MLS in your area. You can also try online marketplaces like HouseCashin and Roofstock who specifically sell properties to investors. Be patient and explore to find the best property that fits your budget and expectations.
6. Do High Quality Repairs
Make sure you put in the time and effort to rehab your flip the right way. If you are building any additions, be sure to pull permits. Also pull permits for electrical, plumbing, and HVAC jobs.
The fundamentals of your flip have to be sound but don’t just stop there. Elevate the aesthetic appeal of the house. Many buyers judge a house on its curb appeal. So, mow the grass, landscape the lawn, and apply a fresh coat of paint on the house.
7. Save Thousands When You Sell Your Flip
After repairs, selling the house is the most crucial step in house flipping. If you are unsure how to sell the house, then these 4 points will help you:
- List on the MLS: Homes listed on the MLS sold faster and for 17% more than homes not on the MLS, according to a recent Bright MLS study. MLS is the most powerful tool for home flippers. To sell your home fast, list it on the MLS.
- Learn to Promote the Flip: Unless you know a potential buyer, it will be difficult to find a buyer quickly. Use the internet and social media platforms to promote your flip online. Try other creative ways to sell a house fast by getting a yard sign, calling a staging company, or hosting an open house to find the next homeowner.
- Save With Full-Sevice Agents: Some of the best real estate brokers have years of experience in the real estate industry and can guide you during the flip and negotiate the best offer for your renovated property during the sale.
- Use Flat Fee MLS Services: House flippers can choose a flat rate MLS listing service to list without a realtor for max exposure and save on high commissions.
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How Much Does it Cost to Flip a House?
House flipping is not cheap. It not only requires funds for the flip but also your time and efforts. Let’s have a look at the overall expenses when it comes to flipping houses:
💸 Your Money
Home acquisition is the major expense in house flipping which you fund yourself or get a loan. Another significant expense is the renovation costs which can go up to $48,241. But you cannot skip repairs in home flipping, so this cost is unavoidable.
Sweat equity is one way to maximize your profits if you do repair work yourself. But If you hire contractors, plumbers, or electricians then you need to pay for their service. The standard charge for labor is $20 to $150 per hour.
Other costs include:
- Holding Costs: Holding costs are expenses you pay as you hold on to the property. They include property taxes, property management fees, HOA, utility bills, and regular maintenance items like lawn mowing.
- Rehab Costs: These include the costs to inspect the home, labor, material, and permits.
- Home Selling Costs: These are typically 5% to 8% of your sale price. Selling costs include realtor commissions, title fees, recordation fees, etc.
- Marketing Costs: These include the costs to list on the MLS, flyers, yard signs, etc.
⏳ Your Time
Flipping a house will take 5 ½ months from purchase to sale, on average. This turnaround time will determine whether your home is a success flip or a flop.
If you find a big issue during the rehab, it can delay your flip by a month, sometimes more. Problem is, the longer you hold on to the property, the more money you will pay to in holding costs. The flip should not empty your pockets. It needs to be worth your time and effort.
Remember to be cautious of the time it takes to rehab the home. You cannot afford to lose time, since you have to sell the house in this down market.
Can I Flip Houses With No Money?
Yes, you can start flipping houses with no money.
In 2022, 64.8% of the investment properties were purchased with the help of external funding. There are numerous mortgage lenders who provide loans for real estate investing.
If you wish to fund your first flip without money then you may consider these options:
- Private Money Lenders: People who loan money to individuals or businesses on interest. The rate of interest ranges from 8% – 10% depending on the risk of the investment.
- Hard Money Lenders: These lenders provide loans for a short period and charge 10% – 12% interest while holding collateral. Many lenders prefer experienced flippers over beginners, but companies like Lima One Capital allow first-time flippers to apply for a loan too.
- Wholesaling Real Estate: It is a quick transaction where you help a motivated home seller find a buyer to purchase their home. According to Investopedia, you can earn 5% – 10% of your home price from the transaction to help fund your flip.
How Long Does it Take to Flip a House?
The average time to flip a house is 164 days.
The home’s location, housing market conditions, and marketing efforts will influence how long it takes for you to complete a flip.
But, you can sell your house quickly if you list it on MLS through Flat Fee MLS companies. Other advantages of listing on the MLS with a Flat Fee MLS listing company include:
- Your flip gets the max exposure.
- You save thousands on the seller’s agent commission by paying a small amount.
- You can negotiate the sale price to ensure you earn a profit.
House Flipping Mistakes to Avoid
- Not Planning Thoroughly: A flip cannot be successful if you don’t plan and execute it well. A first-time house flipper can fail to anticipate risks due to lack of experience.
- Not Having Enough Money: During the fix and flip process, there are bound to be more expenses than you predicted. It is necessary to have funds in times of such crisis.
- Not Assessing the House Before Purchase: A distressed property with severe issues will burn a hole in your wallet and extend the flip. A house needs a thorough inspection before the purchase to avoid delays during the flip. Remember, a distressed property is an asset only if there are fewer repairs.
- Not Investing in a Good Team: Suppose, your team members do not have much experience. Then, their inexperience will delay your fix and flip. Invest in a team of professionals who can speed up the process and work with you in the future.
Best Places to Flip Houses Near You
Is Flipping Houses Worth It?
Yes! 10% of all homes sold in 2022 were flipped.
Flipping houses can be an exciting venture. You’re hunting for deals, doing financial analysis, rescuing homes in disrepair, and selling them to excited and grateful home buyers. And you’ll pick up several useful skills along the road.
Home flipping obviously has risks, but with proper preparation and a good flipping strategy, you can mitigate these risks, even in the current real estate market.
When buying and flipping houses, you need to save on commissions when selling the house. Oh, and in between purchasing and selling, you have to do a great job in rehabbing the flip.
Your flip is someone’s American dream. You have to do justice to it!
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Frequently Asked Questions
1. What is Micro Flipping?
Micro flipping is a short-term transaction where a house flipper purchases an investment property and resells it fast without making any changes to the property.
2. How to flip a house with little money?
Ask for loans from one of these to fund your flip with little money:
1. Private money lenders
2. Hard money lenders
3. How hard is it to flip houses?
House flipping is quite hard because you need a lot of time and patience. It takes time to find an ideal investment property, arrange funds and create a team. But with experience, it becomes smoother and easier.
4. Where is the best place to flip houses?
The best place to flip a house is San Jose, CA. Amongst other cities, it has the highest return on investment. Check out other locations to flip houses to choose the best place near you.
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