Let’s face it, we all absolutely love watching TV shows about flipping houses. It’s so fun to see what they start with, the work in progress, and the finished product that looks like a completely different house.
Have you ever thought about taking on this kind of project?
Are you curious about what it will take to successfully flip a house?
But what exactly is house flipping and how do you do it successfully? Here you will find a description and several steps that will help you decide if house flipping is an investment you are ready and willing to make.
What is House Flipping?
House flipping is the term that is used when a property is bought with the intention of doing several renovations then selling the house in a short period of time to make a profit. A house that is bought to flip will not be lived in by the people who bought it, it will be an investment property for them.
House flippers purchase a home that other homebuyers aren’t financially able or willing to renovate. They will then improve and renovate the house to meet current buyer demands in order to sell for a profit. Most people want to buy a move-in ready house, so house flippers will make that possible.
How Do I Flip a House?
There is definitely a ton of work that goes into flipping a house and getting it move-in ready. It may feel impossible to even know where to start, so here are a few steps to take to help you feel more confident before starting the process.
Step 1: Search Real Estate Markets
You’re probably working with a very strict budget, especially if this is your first time flipping a house. This will be a crucial step in finding the right house. You will need to search the areas around you to determine which area is offering houses for the best prices.
The less cash you have available, the lower the price of the house will need to be. You need to make sure you are searching in the right area because you don’t want to start a project and not be able to finish it.
Real estate investors classify neighborhoods with a “class” ranking of A to D. Class A is a wealthy neighborhood, Class B is a solid middle-class neighborhood, Class C is blue-collar, and Class D is low income. Many flippers specialize in Class D because this type of house will be the most affordable, but they do come with more risks.
For your first house flip, try to invest in a Class B or Class C house. These types of houses may cost more than a Class D house, but they are less likely to need a ton of work. These houses will allow you to get a feel for the house flipping process before investing in bigger projects.
Step 2: Set a Budget and a Plan
After you have researched markets, you will have a good idea of about how much you will need to spend. This will allow for you to create a budget that allows for the renovations as well as the purchase.
Are you planning on applying for financing? Do you have the money up front? These are both important questions to ask yourself when setting up your budget. If you have the money up front, then you know exactly what your total budget will need to be.
If you are going to finance this project, you will need to make sure you have enough money for the down payment of the loan and that you will be able to afford the monthly payments.
You also need to determine what needs to be renovated and how long it will take you to complete the renovations.
Step 3: Determine Labor
Are you planning on doing these renovations yourself, or are you looking to recruit some help from professionals?
If you want to do the work yourself, you need to make sure you know how to do the work before you start. Try doing some work on your own house, if you haven’t already, to see how you handle the work.
If you want to hire professionals, do so by asking friends and family for recommendations, research potential contractors, ask questions, and request an onsite estimate.
Step 4: Buy a House
It is best to work with a real estate agent who has experience working with investors. They will be able to help guide you in the right direction and help you pick a home that will be worth both your time and your money.
A real estate agent will work with you through the whole process, from finding a house to signing the paperwork. They will do everything they can to help you find the right investment property.
Want to know how to finance your fix and flip properties? See our page on private equity loans
Pros and Cons
With any type of project there will be pros and cons, but what are they when it comes to house flipping? Considering pros and cons will help prepare you for what you are getting yourself into.
Pros
There is the potential to make a decent profit from your sale. Flipping a house can be a fun hobby and potentially a new full-time job if it’s right for you. Flipping also helps improve the values of neighborhoods by restoring run-down looking houses.
Cons
There is a financial risk involved, you could do the work and renovations, but the house doesn’t sell for what you want or even sell at all. It is also possible to run into a bunch of unexpected issues.
Final Thoughts
Beginning this process can definitely be stressful, take up a lot of your time, and be a lot of work. Build a network of people that you can go to when you have questions, need help, or just don’t know where to go next. There are so many people out there that have been in your shoes and would love to help you out.
