10% of all homes sold in 2022 were flips. 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.
What is House Flipping?
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 25% profit in 2022, despite the fact that they were selling in a down market.
Most experts predict that the real estate housing market will 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 25% 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, and as long as it is not a major project, you can still complete the flip 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 get it 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 to Flip Homes 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 probably the most important consideration when investigating a flip. A good location can boost the sale price of your renovated home. But a neighborhood with 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 to budget that cost in your flip accounting. If the repair
» 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.
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✍️ 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
You make money on a flip when you buy it.
After you secure funds, find a house to buy. Look for a house in a desirable location or neighborhood to maximize your flipping profits.
Online marketplace, HouseCashin specifically sells off-market properties to investors.
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. Market the House
Market the property to find a potential buyer fast. A house flipper should use creative ways to market the house to find a potential owner.
A quick way to promote the home is to list it on the MLS.
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How Much Does it Cost to Flip a House?
There are two costs involved when flipping a house. Your money and your time.
The major expense in flipping a house is the renovation costs which can go up to $48,241. But, you cannot skip repairs in house flipping, so this cost is unavoidable. Other costs include home purchase, labor, marketing, etc.
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. There are other expenses you need to take into account, such as:
- Property Taxes
- Utility Cost
- Property Management
- Permits
- Costs to Sell the House
- Closing Costs
Can I Flip Houses With No Money?
Yes, you can start flipping houses with no money.
In the third quarter of 2022, 36.3% of the investment properties were purchased with the help of external funding. There are numerous 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 depends on the risk of the investment.
- Hard Money Lenders: These lenders provide loans for a short period at high interest while holding collateral.
- Wholesaling: A flipper can earn money for finding a buyer for an eager home seller using the wholesale real estate contract.
» How to Flip Houses With No Money: Can you truly flip houses with no money?
How Long Does it Take to Flip a House?
The average time to flip a house is 163 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 Flat Fee MLS includes:
- 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
1. Not Planning Thoroughly
A flip cannot be successful if you don’t plan and execute it well. As a beginner, you can fail to anticipate risks due to a lack of experience.
2. Not Having Enough Money
During the fix and flip process, there are bound to be more expenses than you predicted. So, it is necessary to have funds in times of crisis.
3. 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.
4. 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 expedite the fix-up process and work with you in the future.
Best Places to Flip Houses Near You
Is Flipping Houses Worth It?
Yes! 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.
Remember, if you’re flipping homes, you need to be careful when buying a house and save on commissions when selling the house. Oh, and in between buying 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!
Houzeo is the Most Popular Selling Platform for Home Flippers
Wanna save thousands when selling your flip? We’ve got you covered. See how Houzeo works and why it is one of the best For Sale By Owner websites used by home flippers across America!
» NEED MORE CLARITY? Read these exclusive Houzeo reviews and learn why it is one of the best FSBO sites in America.
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. Wholesaling
4. Crowdfunding
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 Buffalo, NY. Amongst other cities, it has the highest return on investment. Check out other locations to flip houses to choose the best place.
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How to Flip A House How-to
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