House flipping is one of the most common strategies in real estate investing, making it an excellent option for experienced individuals who know the housing market.
If you’re a beginner who wants to excel at house flipping like the pros on HGTV, you need to know what you’re getting involved in so you can master your first flip and set yourself up for a career of success.
Ready to start flipping houses? Here’s how to get started.
What Is House Flipping?
House flipping is the process of buying real estate property with the intention of selling it for a profit.
House flipping is different from buying a house to live in or rent. This strategy is for a property investor who wants to buy houses, hold them, and sell at the opportune time.
In other words, house flipping doesn’t involve treating a house as a residence.
How to Flip Houses
- Pick a strategy
- Consider getting a real estate license
- Get smart about funding
- Research market conditions
- Form a solid network
1. Pick a strategy
There are a few different strategies you can choose when flipping houses. Let’s briefly examine some of the most popular ones.
Fix and flip
This strategy involves buying distressed properties, fixing them up, and selling them for more money. Fixing and flipping is definitely not a passive real estate investment. It can require a substantial amount of work — such as replacing flooring or windows or doing foundational or support work.
Buying at foreclosure
Foreclosure happens when a homeowner defaults on their loans and the bank steps in to sell the house. Often, you can get decent properties at foreclosure for far less than market value.
Buying short sales
A short sale occurs when a financial owner runs into financial trouble and sells a property for less than the amount due on the mortgage.
This strategy is a bit harder, but it can be done.
It’s possible to find normal houses that don’t require extensive repairs. You can either enhance their value with upgrades or hold them until market conditions are favorable.
2. Consider getting a real estate license
If you’re serious about flipping homes, it’s a good idea to look into getting a real estate license so you can put your own homes on the market.
Otherwise, you’ll have to pay realtors to act as listing agents every time you sell, which can get pricey.
If you decide to work with an agent, it’s a good idea to be selective about who you sign a contract with. Look for a partner who has both expert knowledge of the local real estate market and great negotiating skills.
3. Get smart about funding
Flipping a home is generally more expensive than buying a house to live in or rent — especially if substantial repairs are required. As such, it’s a good idea to be smart about how you fund the property.
The best thing to do when flipping a home is to save up money and buy the home in cash outright. This will prevent having to go through the mortgage process and talking with different lenders about home equity lines of credit (HELOCs) and other types of loans.
Lenders are often skeptical about working with inexperienced house flippers, so it could be harder to get decent rates.
In addition, some lenders won’t even consider working with house flippers at all.
4. Research market conditions
Before you start looking at houses, it’s a good idea to assess local market conditions and do some advanced planning. Try to narrow down specific locations with affordable pricing in areas that are either already popular or up and coming.
Remember, house flipping is not typically a long-term play. As such, it doesn’t make sense to look too far down the future when considering whether to purchase a property.
As an example, you might find a house that’s reasonably priced in an area that has a lot of development and investing taking place. The trick is to buy a place at a bargain rate and then sell it once the house and surrounding properties shoot up in value.
It’s difficult to time the market perfectly, but it can be done.
5. Form a solid network
Success as a real estate investor requires having a solid team around you to guide you and help you get top dollar for your properties.
For example, one of the best investments you can make is in a team of trusted contractors who can give you honest assessments about repairs and upgrades. Have this team on standby so they can step in whenever work needs to be done.
Even if you’re decent with home repairs, it’s a good idea to work with professional contractors who can advise about what materials to use, what to upgrade, and what should be left alone. The same can be said about specialists like landscaping providers and painters.
It also pays to form relationships with local financial professionals and trusted home inspectors whom you can call for assessments and advice when it’s required.
How Long Does It Take to Flip a House?
It’s easy to underestimate how long it takes to flip a house. The process may look fast and easy on HGTV, but it can actually take a ton of time. Altogether, the entire process can take six months. For inexperienced flippers, it can take much longer than that.
Of course, this can vary depending on the type of project and the quality of the house as well as market demand. Often, a house can sit vacant for a lot longer before the owner decides it’s time to sell.
Here’s a general breakdown of the time frame when flipping a house:
- Buying: Three weeks to a month or longer
- Restoring: One to twelve months — depending on how much work is required
- Marketing the house: One to two months
- Selling: One to two months
Picking the Right Location
Location is critical when flipping houses. There’s no reason to feel tied to a specific area. It’s possible to obtain real estate licensing in other states or work with a real estate agent if you see a market that looks good. For example, you could live in Maine and flip houses in Texas.
Some of the top cities for flipping houses include Pittsburgh; Cleveland; Wilmington, Delaware; Philadelphia; Columbia, Maryland; and Baltimore.
In addition, cities with the fastest rising gross profits include Dallas, San Antonio, San Diego, Chicago, and Oklahoma City.
It’s important to take a variety of factors into consideration when looking at different markets. For example, you’ll want to look at job creation, surrounding amenities like mountains, beaches, and parks, school quality, proximity to grocery stores and retailers, public transportation, cleanliness, and taxes, to name just a few examples.
It’s also a good idea to factor in environmental conditions. A growing number of home buyers are prioritizing ecological conditions. That being the case, you don’t want to get stuck with a house that is unfriendly to eco-friendly buyers.
How to Profit From Real Estate With No Money
One question that new flippers often ask is how to profit from real estate without any liquid capital. Most people have limited cash on hand, with the majority of their earnings tied up in various investments.
As it turns out, there are a few options.
Wholesaling doesn’t require making any purchases. Instead, the wholesaler contracts a home with a buyer and keeps the difference between that price and the seller’s offer. This is typically done with houses that are distressed and in need of renovations.
Talk to hard money lenders
Hard money loans are interest-only loans that enable investors to buy properties while also supplying them with capital to make upgrades and repairs.
The 70% rule says that house flippers should avoid paying more than 70% of the after repair value (ARV) of a property minus the cost of repairs.
Option to buy
An “option to buy” policy gives the investor the right to purchase a property after leasing it.
This option can be risky. But it’s a way to potentially secure a house without having any money to put down.
Tips for Flipping Houses
Here are the top tips to know before flipping houses.
Beware of carrying costs
Carrying costs are fees that homeowners need to pay for owning a property. This may include a loan, landscaping, utilities, insurance, and taxes, to name a few examples. The longer you hold a property, the more you’ll pay in carrying costs.
Estimate project costs in advance
Try to get a solid understanding of how much you’ll need to pay in repairs when buying a house.
In other words, don’t get so caught up in buying a house at a bargain price to the point that you fail to factor in the true cost of putting in a new kitchen, bathroom, yard, or finished basement.
These projects can tack thousands of dollars onto the purchase price, eating into your profits.
Take the home inspection process seriously
The home inspection process is nothing to dash through. As important as it is when buying a home to live in, it’s even more important when getting a house that you’re going to flip. Rest assured that, if there is a potential issue, the buyer’s inspector will find it.
For example, one issue that causes a lot of grief is mold, which can be difficult or impossible to detect with the naked eye and requires the help of a certified mold inspector. Failing to capture a mold problem could result in a massive pre-sale renovation.
Sharpen your negotiation skills
Real estate investors who choose to get licensed as real estate agents need to do more than just learn the real estate process. They also need to sharpen their negotiation skills.
Negotiation is a critical part of the real estate process, and a good real estate agent will know how to play hardball to get the price where they want it to be.
REITs: A Top Alternative to House Flipping
Often, real estate investors want to enter the market and flip homes but are afraid to get in over their heads. This is a reasonable fear because house flipping is risky and expensive.
One strategy is to buy real estate investment trusts (REITs), which are publicly traded companies that own and operate commercial properties. REITs are available in many types of industries and sectors, including healthcare, telecommunications, retail, data centers, and office buildings, to name just a few examples.
REITs can lead to steady profits and dividend returns over time, without any of the stress or overhead that comes with buying, repairing, managing, and selling actual properties. They are just like buying stocks.
Frequently Asked Questions
Here are the most frequently asked questions about flipping houses.
Can you make a lot of money flipping houses?
It’s certainly possible to make a lot of money flipping houses. It starts with being smart about the first house you buy and using those gains to purchase more properties.
Generally speaking, the more houses you flip, the more you’ll make, and the better you’ll get at it. The best house-flippers keep growing and give their projects the proper attention that they require.
Who knows? Do a good enough job, and flipping houses can be a full-time job.
Can you flip an investment property right away?
Most flipping occurs within a few months after buying the property. Flipping is not a long-term hold strategy.
What is sweat equity?
Sweat equity is the result of hard labor that you put into a property that results in a higher profit.
An example of sweat equity could be clearing brush and increasing the size of a yard, building a deck, or finishing an attic or basement.
Anytime you manually invest labor into a house without paying professional contractors to do the work for you, it’s considered sweat equity.
What is a live-in flip?
Some investors choose to buy a house and then live in it while they conduct necessary repairs and flip it, a process known as live-in flipping.
This is a great way to increase your profit margin and cover renovation costs, as you can avoid having to pay rent or another mortgage while you live in the house you’re flipping. When the project ends and you sell, you simply pack up and move onto another house and start again.
Serious flippers often start out by doing live-in flips to save money and get ahead.
The Bottom Line
Flipping homes can be an excellent short-term real estate strategy. It’s one of the more difficult types of real estate investments that you can try. But, with the right approach, it can be immensely profitable.
The key is to nail your first house purchase and set yourself up for long-term success without going too far into debt. Focus on finding the right property at a great sale price and pay attention to the amount of time that you spend on it.
First-time homebuyers need to be very careful and get a property they can easily resell — whether it’s a fixer-upper or a foreclosure.
The biggest thing that you can have before entering into the house flipping market is a strong “why.” In other words, you need a reason for entering into real estate — even if it’s just to make a lot of money.
Start by outlining your goals, and make sure that you’re making the right decision before entering into this market. Otherwise, you could end up over your head quickly.
If you’re new to real estate investing, you might want to dip your toes into the industry by investing in REITs first. And once you’ve socked away enough for a down payment on your first flip, you can move forward with confidence that you’re not starting out from a blank slate.
Whatever you do, be patient, analyze your options, and don’t jump into anything too fast. With a smart approach to the market, you could be well on your way to building a real estate empire before you know it. Whatever you decide, I’m rooting for you!