Flipping Houses

How do I start flipping houses?

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    In the real estate flipping business, an ounce of prevention is worth a pound of cure. With a little bit of reading and effort, you can eliminate most of the risk associated with your first fix and flip project. This entails doing things like conducting cost estimates and hiring dependable contractors. Here is the place to start, as our manual will instruct you on the basics of house flipping.

    Have no fear! — It's painless, and there's no out-of-pocket expense. We don't want you to waste your savings on house-flipping classes or courses because we've given you everything you need to know to be successful in the business right here in Flipping Houses 101. House flipping can be a lucrative business, and this guide will show you the ropes, step by step, with the help of advice and suggestions from veterans who have closed hundreds of deals. In other words, you can make it happen!

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    What Is House Flipping?

    Flipping is a method of making quick profits in the real estate market that entails buying a property at a discount, making upgrades, and then selling it for a profit. In this case, you aren't buying a house to live in permanently, but rather to put money into the local real estate market. It's worth noting that the whole point of "flipping" is to make a quick buck by snatching up a bargain and then selling it for more than you paid.

    House flipping can be a lucrative business model if the real estate market is healthy. When the market is doing well, this is especially true. Remember that when selecting properties for house flipping, foreclosures and older homes are frequently chosen. This is because these properties can usually be acquired by real estate investors for fair prices, thereby increasing their potential for profit.

    A real estate investor can make a profit from a house flip with no outlay of capital. If you answered "yes," you got it right. If you want to flip houses for a profit but don't have enough cash for a down payment, don't worry. You can enter the house-flipping market in a number of different ways, all of which are relatively straightforward.

    When a real estate investor buys a property with the goal of quickly selling it for a profit, they are said to be "flipping" the property. A "flip" is defined as the purchase and subsequent sale of a residential property with a short time lapse between the two transactions. The time between a purchase and a sale can typically range from a few months to an entire year.

    Flipping Houses

    There are two different types of house flipping:

    • An investor will buy a piece of property with the expectation that they can increase its value through various types of improvements and renovations. They plan to make a profit by selling the house for more than they paid for it after the renovations are complete.
    • An investor buys a house in a region where property values are rising quickly. They don't make any repairs, but after holding on to the property for a few months, they're able to sell it for more money.

    For the most part, we'll be referring to the first definition of "house flipping" as we offer advice on how to find a property, renovate it, and then sell it.

    Risk vs. Reward

    Just picture yourself spending $150,000 on a home, spending another $25,000 on renovations, and then nothing happening. There is zero demand for it. You must now pay not only your current rent or mortgage, but also the mortgage, utilities, insurance, and taxes on the property you are flipping. You may have to pay for home staging in addition to the realtor's commision when you sell your house. There will be a drop in your expected profit as a result of all of this.

    The average return on investment for house flippers is lower than it was ten years ago, despite the fact that house flipping is more popular now than it has been in the past ten years. Rising costs, a lack of available properties, and skyrocketing rents have created a seller's market in the housing industry, making it harder to turn a profit (all of which drive even more people into home buying).

    Third quarter 2017 house flips netted an average of $66,448 in gross profit, per ATTOM Data Solutions. That's more than a lot of people make in a year, so it's no surprise that it attracts a lot of newcomers who hope to one day quit their day jobs and become full-time investors. The investors who are making this kind of money are experts in their field; however, even the most successful investors occasionally suffer losses.

    In 2016, 1 in 5 flipped homes either lost money or made a small profit after expenses. Twenty-eight percent of all flips resulted in a gross profit of less than twenty percent of the purchase price. Carrying costs plus the bare minimum profit needed to cover those costs.

    Is Flipping a House a Good Investment?

    Flipping houses is not as simple as it looks on TV. Truth be told, the act of house-flipping can be everything from a life-changing dream to a terrifying nightmare.

    If done correctly, flipping houses can be a lucrative business. Smart home improvements can increase the home's resale value by a sizable amount compared to what you initially invested.

    Flipping houses can be a lucrative business if done correctly. However, it could end up costing you a lot of money if it is done improperly.

    However, if the house flipping procedure is executed poorly, the investor stands to lose money. Everybody knows the horror stories about people trying to make a quick buck by flipping houses, like the one where the seemingly cheap house turned out to have a rotten roof and a weak foundation. Buying and selling homes may not be profitable for you. You could end up spending a few thousand dollars on it.

    The worst possible outcome when attempting a house flip is a loss. You want to invest wisely so that you can reap the benefits in the future.

    Finding A House To Flip

    Look on foreclosure sites. 

    If you want to know where to look for cheap houses to flip, one of the best places to start is on foreclosure listing websites like Foreclosures.com. Property listings that have been made available for sale due to foreclosure can be found on these websites. The real estate that they have taken possession of is listed on the websites of many financial institutions, such as banks and lenders. Keep in mind that some of these listing sites call for a paid membership.

    Attend auctions 

    Real estate can often be found at substantial discounts at auctions involving probate or foreclosure. But you should be ready for a bidding war, which could end up with the most appealing bid being an all-cash offer. There may be real estate auctions coming up soon, so check the county website to see if there are any in your area.

    Drive around

    One of the more traditional methods of finding a property to purchase for the purpose of fixing it up and selling it for a profit is to simply drive around the area. Look out for homes that exhibit signs of distress, such as broken windows, overgrown yards, and a surplus of mail and newspapers. Once you've found a property that piques your interest, jot down the address so you can easily find the seller or owner online and make an offer.

    Join your local REI group 

    Becoming a member of a local real estate investment club or association is a good idea regardless of the specifics of your investing niche. Making connections with other professionals in the real estate sector can open doors to new business opportunities. Using LinkedIn.com, online forums, and in-person meet-ups are also fantastic ways to expand your network.

    Network with wholesalers 

    Experts like you are crucial to the success of wholesalers, who rely on house flippers like yourself. Finding properties at prices below market value and reselling them to third parties is their only goal. Flippers can profit from the difference between the wholesale and retail prices of a home by buying at the lower price.

    Work with an agent

    You should seriously consider adding a real estate agent to your team if you lack experience in the industry or knowledge of the current state of the market. A licenced real estate agent will also have access to the MLS, which will help you find properties listed for less than their fair market value.

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    How to Flip a House in 5 Steps

    Finance the House Flip With Cash

    It's not hard to see how taking on debt while trying to make a profit flipping houses could be disastrous. Here are some of the many good arguments in favour of using cash to complete a house flip:

    • No interest will be added to your balance. Those who borrow money to flip houses run the risk of paying interest for several months, which does nothing but drive up the asking price.
    • We are in no rush to close the deal. One of the risks of using debt to fund a flip is that it can make you feel desperate and hasty. The home's asking price will likely need to be lowered if it doesn't sell soon, reducing your potential earnings. Cash-only house flippers have more time to wait out a slow market before interest payments begin to pile up.
    • You are completely debt-free at this time. To begin with, it's a terrible idea to take on more debt in order to make a "investment" of any kind.
    • Period. If you paid cash for the house and then try to sell it for more than you paid, you stand to lose money. If your plans run into trouble, using debt during the process significantly increases the risk of financial loss.

    Let's take a look at an example to see why it's not wise to take on debt to flip a house: Your plan is to quickly flip the house you just bought with a $130,000 loan, so you take out a large loan for that purpose. In order to make a respectable profit, you decide to finance an additional $30,000 for home improvements and set your sights on selling the house for $200,000. Do you agree that it's a great concept?

    Everything seems to be running smoothly until a sudden repair that will set you back another $2,000. Finally, the duration of the renovation has doubled from four to six months, adding another $3,000 to the final tally. After a month on the market, the house is priced at $200,000, but you can only get a buyer to agree to sell for $185,000.

    Following the expiration of the month, you may terminate the agreement and collect your funds. But you should expect to pay back the loan in full, plus interest accrued over the past eight months, from the proceeds you receive. This is on top of the regular selling expenses like real estate agent commissions, taxes, and title fees.

    Know the Market

    Focusing on the next project helps many real estate investors avoid thinking about the less appealing parts of the business. However, issues such as the ones below may arise if you don't have a solid grasp of the local real estate market and trends.

    • You have no idea if the house you're about to buy is a good deal. The purchase price should be low enough that you can make necessary repairs and still make a profit when you resell the house at its current market value.
    • There is no way for you to arrive at a reliable valuation of the property. Your design for the house should be feasible given the existing conditions in the neighbourhood and the financial means of the locals.
    • If you think you can value the house, think again. A good rule of thumb is to price your flip near the low end of the market range, so if you buy a house in a neighbourhood where most homes are priced between $130,000 and $150,000, you should sell it for around $140,000.

    The key to a successful flip is in-depth market knowledge, but how does one go about acquiring that knowledge? Get in touch with a real estate agent who has extensive experience and a focus on the area. By considering your budget, the amount of money you have set aside for renovations, and the rate of return you're hoping to achieve, your real estate agent should be able to help you zero in on the best areas in which to look for a home.

    Make a Budget for Your House Flip

    Before buying an investment property, you should sit down and create a budget. You should have a good idea of the price range within which you can afford to buy a home, make any necessary repairs, finish any renovation projects, and pay any selling costs before you finalise the transaction.

    You should have a good idea of the price range within which you can afford to buy a house, make any necessary repairs, complete any renovation projects, and pay any selling costs before you finalise the transaction.

    Make a list of everything that needs doing, from minor fixes like fresh paint to major overhauls like fixing the plumbing or electrical wiring. If you don't have a construction background and aren't sure what needs fixing or how much it will cost, a contractor can help. It is crucial that you investigate this topic because unexpected maintenance costs can make or break a flip.

    You should have a home inspection and any other necessary specialised inspections done when you are under contract to purchase the property. Rather than being caught off guard, it is always preferable to spot problems in their early stages.

    Invest in Smart Renovations

    Renovating can get out of hand fast if you have lofty goals of installing brand new hardwood floors, trendy light fixtures, and high-end appliances in the kitchen. This is why it's so important to have a clear idea of your financial limitations right from the start, and to keep an eye on your home renovations to make sure they're going smoothly and adding value.

    Don't forget that the success or failure of your flip can hinge on the quality of major renovations like the kitchen and bathroom. Consider the kitchen as an example. The average cost of a major kitchen remodel in 2020 was nearly $68.500, according to a report titled "Cost vs. Value." Only about $40,000 is recoverable from such an outlay. 2 You don't want a return like that when you're trying to make money flipping houses.

    If you plan to sell the house for $220,000 after the remodel is finished, you shouldn't spend $60,000 on custom cabinetry, high-end finishes, and your dream kitchen island. Refinishing the existing cabinets, installing granite countertops, and updating the appliances is a smarter alternative to completely gutting the kitchen and starting over. Reduced costs and an increased likelihood of seeing some of your initial investment returned upon reselling the home.

    You may choose to make a few major improvements to a house before selling it, but don't underestimate the value of minor touches. It is possible to drastically alter the visual appeal of a house by making small but strategic changes, such as applying a fresh coat of paint, replacing the doorknobs, and sprucing up the landscaping.

    Get Guidance From a Local Real Estate Expert

    Do people really make money flipping houses? If you approach it properly, you most certainly can. A median of nearly $218,000 was realised in 2019 for resold homes, with a resulting gross profit of nearly $63,000. 3

    Keep in mind that the cost of upkeep and renovations is not included in the gross profit total. However, if you are able to complete the renovations on the property without going over your budget and sell it for a profit, you will see a healthy return on your investment.

    To successfully flip a home for a profit, you must be financially stable, know what you're doing in terms of the type of home you buy, make smart decisions about the renovations you undertake, and sell the property as soon as possible. It is much simpler to achieve these objectives when you have a real estate agent working for you.

    Whether you're buying a home to live in for years or to flip within the next six months, a good real estate agent can give you the market knowledge and practical guidance you need to make a smart investment.

    Here are three great options to help you flip homes with no money.

    Hard Money Lenders

    If you want to buy property but don't want to shell out a huge sum of money up front, a hard money loan could be the answer. One definition of a hard money lender is an individual who makes loans to borrowers at exorbitant interest rates and may add additional fees in the form of "points" to the principal. Private money lenders, or hard money lenders, are another name for the same thing. The amount you can borrow from a hard money lender is typically much higher than what you could get from a regular bank or other financial institution.

    A hard money loan may be a good choice for experienced property investors who already have an investment portfolio. They are also a great option for owner-occupants with a high amount of home equity and a stellar credit history.

    The fact that hard money lenders exist means that you can get the money you need to make the necessary repairs to your property. Unlike conventional bank loans, hard money lenders are not concerned with your credit history when deciding whether or not to provide you with funding. However, the interest and fees associated with hard money loans are typically much higher. Take note that points can range from one to five, and that interest rates can go from 8 to 15 percent.

    Also, remember that most hard money lenders will only loan you a certain percentage of the purchase price, usually between 70% and 80%. Pay close attention to the interest rates, fees, and terms of the loans when comparing the various providers of hard money loans.

    Private Money Lenders

    If you have the know-how and experience to flip houses but lack the capital to do so, this is your best option. Private money lenders are individuals with access to capital who are also looking to make real estate investments. However, they either don't know how, don't have the time, or would rather be at the beach or playing golf than swinging mallets. Private lenders have cash on hand to lend at a predetermined interest rate and are willing to do so. In the absence of any cash, a private money lender is probably the best option for financing a deal.

    The financial contributor or lender can relax and hand over the cash without any fuss. The other partner, on the other hand, will be in charge of overseeing the real estate project's logistics and ensuring a swift and professional house flip. You can borrow the full purchase price, repair costs, and maybe even some other costs if you find the right private lender.

    Remember that the lender's loan amount is based on several factors, including your credibility with private investors, your level of experience in the real estate industry, and the value of the property you intend to purchase.

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    Wholesaling

    You can make a profit from real estate flips with no initial investment by using the strategy of real estate wholesaling. Wholesaling houses is a great option for investors who are already running a successful flipping business. Remember that if you want to succeed in property wholesaling, you'll need a solid group of real estate investors to whom you can pitch some fix-and-flip opportunities. You can forget about making any money in real estate wholesaling without such a network. Therefore, you cannot blindly purchase a home and hope for the best. Having a strategy in place is crucial for reaching your goals. Most wholesalers make money by marking up their purchases by a set percentage, usually between 5 and 10 percent.

    You can make money in the "fix-and-flip" real estate market by "wholesaling," or selling the right but not the obligation to acquire a home to another investor. It's not like buying a house the old fashioned way at all. You will receive an assignment fee as payment for acting as a middleman.

    To successfully flip a house with no money down, one must be resourceful, willing to work with other investors, and willing to think outside the box of traditional lending practises. Real estate wholesaling, hard money lenders, and private money lenders are your best bets when looking for a source of capital.

    There's no denying the fact that real estate investing is a dangerous occupation. If you play your cards right and make smart decisions, real estate flipping can be a lucrative venture. If you make a bad investment, however, you could lose everything.

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