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Maybe you’ve seen it on reality shows.
Homes are getting flipped. Some good-looking individuals purchase a house, do a few fixes, and sell it for a much bigger profit. Well, the overall process on how to flip homes or how they do it may seem so smooth—earning quick cash after every other repair. But behind the scenes of this show, flipping homes can be quite disastrous and draining.
Although house-flipping may look so simple and easy, it’s not how it’s shown on TV. The core idea of how to flip homes is to buy low and sell high. However, you also have to perform proper repairs to meet the buyer’s demand. Other than renovation expenses, you have to pay for marketing, utilities, and even the insurance fee.
If you’re interested in understanding how home-flipping works and what other factors are involved, here are seven foolproof steps for newbies to start flipping homes.
Did you know Houzeo’s Gold Plan provides relevant Federal and State Seller Disclosures?
What is House Flipping?
House flipping is simply buying a worn-out or distressed property, usually at auction, then make some renovations and sell it for a larger profit. A property is considered a flip if it is purchased to resell immediately to an interested buyer.
Typically, within months or a year, the house is sold after doing repairs or holding the property to earn more what you paid for. Mostly, it’s all about spending your money right and wisely. In getting started on how to flip homes, preparation is the key. It’s important to create a plan and invest in a marketing strategy that can surely win back.
How to Flip Homes?
Remember that a fix-and-flip business can turn into a disaster if done poorly. Instead of reaping rewards, a house flip could cost you thousands of cash without even realizing it. We’ve heard of good home-deal stories; And it turns out, the house is infested with termites—and with a leaky roof.
There are certain steps you have to follow if you want to flip a house the right way. Don’t ever expect to learn everything about flipping homes with just one night. There is so much to learn and experience. To avoid costing more than what you get, here are seven steps you should take note of.
Prepare a plan and budget.
Before stepping into the game, assess your financial resources first. No matter how good your business plan is, without a budget, you’re a sitting duck. Have a basic budget or partner with an investor.
Know first how much money you have to invest before buying properties. However, there are plenty of ways on how to flip houses with no money using a bank, a hard or private money lender, a joint venture partner, and other possible means. Either of these ways, you’ll need to split the profits.
When setting a budget, always anticipate that the house needs more work, cost, and money to increase its value. Add an extra 15% to 20% above your original budget to cover the worst-case scenario on your home renovation.
Research and know the market.
Flipping homes requires a lot of research. You need to check how properties can sell well in different neighborhoods (depending on season or price on the market). Learn the current market condition because this may affect the value of homes over time.
Research about popular housing trends or partner with a skilled real estate agent. You have to know what are the necessary repairs, the best time to sell, and other details before putting both feet in the field.
After securing the finances and understanding the market, you’re now ready to buy a house. But, how to find homes to flip? And how to flip homes with no money?
Almost 56% of home buyers consider finding the right property as the most difficult step of the home buying process. That’s why you should prepare a market analysis to narrow down your search. The money you’ll likely earn boils down to what kind of property you’ll buy. Most successful house flippers are always careful when choosing a house to invest in—the right property at the right price.
Here are some vital factors you have to consider when buying one.
Does the area have nearby malls? Schools? Hospitals? Or does it have a safe neighborhood? Check the crime rate just to make sure. A house with a great location makes it more appealing—but consider if it fits your budget or investment criteria.
Be cautious with a house that has more property defects. Such property can cost you a lot of money and time before marketing it. It’s wise to stick to properties that only need minor repairs and upgrades. Perform a home inspection to estimate the home rehab cost, and maybe uncover hidden defects.
Below Market Value.
Homes priced below market value can give you the highest return. Consider purchasing distressed properties (under foreclosure, short sale, a problem with mortgage payments, or tax bill). Conduct a Comparative Market Analysis or CMA to check if a property is below market value.
Important: It’s best to purchase an “ugly” house (with great neighborhood), so it has more chances to be sold at a higher price.
Furthermore, a licensed realtor—if you know one—can help you get access to MLS. It’s a powerful database that lists all properties for sale within an area, including with vital information to help make your home search easier.
Invest only in necessary repairs.
You can save a huge amount of money if you do some of the minor repairs yourself. But make sure you hire a professional to fix property issues beyond your capability. When you hire a contractor, supervise all the rehabilitation and check if all are according to the budget.
There are ways on how to increase your home value. And make sure you do the ones that are necessary and vital to increase your profit. Otherwise, you’ll lose big if you aren’t careful enough on spending your cash wisely.
Important: Implement the 70% Rule — pay 70% of the After Repaired Value (estimated value of a property after all repairs) minus any repairs or upgrade costs when purchasing a property to flip.
Partner up with an agent.
Although this may seem questionable, having a skilled real estate agent is a plus. Two heads are better than one. Of course, you have to pick an agent that has enough experience on how to flip homes.
You need someone who can handle the negotiation, manage and estimate the costs of repairs, or determine the sale price you can profit once the house is rehabbed. A professional real estate agent can easily estimate and warn you about homes that could give you less profit due to its costly repairs.
Now, you can sell the property.
After all upgrades and repairs are done, it’s time to market the property for sale. With the help of your agent, you can sell the house to your targeted buyers.
Work fast, earn more.
The goal of flipping houses is to keep the time short when holding unto a property. The shorter the time, the better the profit. If the house sits longer, you’ll suffer from soft costs and other carrying fees (including town taxes, financing payments, maintenance, utilities, etc.). In return, could costs you a lot more.
So, make sure you have to be strict on schedules while doing the job properly. Hire a trusted contractor who knows how to follow and manage time. And also, a real estate agent who can help estimate the final price of the property.
The Pros and Cons of Flipping Houses
- Decent profit. You can earn as much as $40,000 to $50,000 on average, per houses flip. As long as you’re eager to earn and work hard, you can get the best ROI.
- Control over the work. Some prefer doing it as a side hustle for their extra savings, while others do it full-time. You can earn money as little or many as you’d like as long as you know how the business works. It depends on how much time, money, and effort you want to invest to earn more profits.
- Help neighborhood home values. Other than the money, you have now a sense of fulfillment by helping people’s problems through increasing home values in areas where most distressed and worn-out properties can be found.
- Federal issues may happen. Buying a home with title issues and then resell it for a higher price could lead to potential lawsuits. Remember to double-check the documents. Be cautious; get a professional real estate attorney to deal with legal issues.
- Financial loss. House flipping can be financially draining. It’s a serious risk where there’s a chance you could not sell the house and end up losing money.
- Major home property defects. Since you’ll have to find distressed or houses that need repairs, it’s unsurprising you’ll buy a house with unexpected issues. There are hidden defects that could cost you a lot to fix the house.
As long as you have a strong and effective guideline, you can be a successful house flipper. The important thing on how to flip homes is to put a limit on your financial risk but maximize your return. But when you really take a moment to think about it, house flipping can be a profitable business if you just follow the seven simple steps mentioned above.
Assess your budget, make a solid plan, and do some thorough market research. Then, find the right property and do a good job on repairs while sticking to the budget. Finally, market the house with its fair price. Repeat, master these steps, and you’ll succeed in house flipping.
Also, feel free to consult other experienced house flippers for a piece of advice.
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