Flipping houses is a hot topic and has been for several years.
Whether you’re looking to:
- Create another source of income,
- Build reserves to buy your own rentals,
- Or create a profitable buy-and-sell business…
Flipping houses for a living can achieve all those…
So, as flippers ourselves — who also have thousands of clients who flip as well…
We’re going to provide you with a step-by-step road map to doing it!
Everything from:
- Is flipping houses for you?
- 7 steps to flipping
- BONUS: how to find off-market deals
- FAQ
Let’s get started…
What is Flipping Houses?
Flipping houses means buying homes at a low price, fixing them up, and selling them for more money. It’s like giving a house a makeover and then selling it to make a profit. It’s an exciting and rewarding way to make money in the real estate world.
It’s no different than if you’re to buy and re-sell cars, or phones… it’s simply a “buy-and-sell” business.
Why Flip?
Other than the obvious reason of making money…
Why should you choose flipping? There are millions of ways to make money, so why choose flipping?
Here are 3 concrete reasons people flip houses:
- Learn the real estate industry (they may want to become a professional real estate investor. Well, flipping houses is a quick way to dive into it
- Start a buy-and-sell business (if you want to start an actual business… then this might be your choice to create an asset you can build and scale systems and teams around.
- Build a reserve for rentals (many who flipped ultimately buy and hold their own rentals. But that takes reserves. So Flipping or wholesaling houses is a great way to build WHILE learning the real estate market.
Before we get into the steps, let’s determine if this is even for you…
Is flipping houses for you?
Flipping houses may not be the right fit for everyone.
It’s like starting your own business, and just like any business, it requires a lot of hard work and dedication.
This isn’t something you do “dabble in”.
Most people who “dabble” in any new venture will end up quitting very early — as it takes a lot more effort than people think.
So let’s dive into what it takes…
Who it’s not for…
… If you don’t enjoy (or at least be o.k. with) the high leverage, high risk, and fast-moving pace of flipping houses… this might not be for you.
… If you’re uncomfortable with problem-solving… this might not be for you (you’re going to run into problems; financial, repairs, business related.
… If you hate managing people… this is definitely not for you. You’ll have to manage. There’s no way around it unless you’re doing EVERYTHING yourself — which is not ideal.
… If you’re uncomfortable asking for money… this might not be for you (You’ll have to make low-ball offers AND ask people to lend you money (at some point).
Why it might be for you
With that settled…
Let’s talk about why this might fit your personality
… If you love managing projects... this could be a good start to a venture you enjoy
… If you love creating systems and processes... there are a lot of systems that have to go into place if you want to scale.
… If you love the rush of a big check and moving on to the next… since this is a buy-and-sell business, you’re moving from one project to the next (or managing multiple projects at the same time)
... If you’re ok with ups and downs… The reality of flipping houses is that in the beginning, your deal flow won’t be consistent. Until you create marketing systems. So income won’t be consistent in the beginning.
7 Steps to Flipping Houses Successfully
1. Find good deals
The first step is finding houses that you can buy for a low price. Look for properties that need some fixing up but have the potential to shine. You can find these deals from wholesalers, online listings, or by directly talking to sellers.
This is the “crux” of the business… it all starts here. Finding good deals is paramount in making this profitable. We’ll talk more about this later.
2. Analyzation
Once you find a potential house to flip, it’s time to analyze the deal. This means figuring out how much repairs will cost and how much you can sell the house for after the repairs. You want to make sure the numbers make sense and that you’ll make a profit.
A second “failing point” of real estate investors and flippers is failing in the analysis step: not doing it correctly.
To get good at this… it just takes practice. Plain and simple.
Ways people screw up this step:
- Over-comping houses — Comping is the art of figuring out the value of a home by comparing your potential house with past comparable sales. If you over-comp, it means you might not have a profit margin or a buffer for error.
- Under-comping houses — If you under-comp, you might not get any offers accepted because they’re too low.
- Underestimate repairs — if you underestimate what it’ll take to repair the house, you might end up with no profit margin at the end
- Overestimate repairs — if you overestimate (you price in too much expense that reality) then you might not get any offers accepted because they’re too low.
Ways to get good at analyzation
- Practicing with deals on the market — crunching numbers
- Talk to lots of agents — get an idea of what will sell
- Talk to general contractors — walk properties with them to get estimates on properties on the market
- Reverse wholesale — a strategy to start wholesaling and making money without knowing anything about estimating repairs or comping houses.
3. Get Funding
To buy and fix up houses, you’ll need money. Either your own or someone elses.
Few traditional lenders give loans for this… but there are plenty of options:
- Hard money lenders (HML) — easy to find, will fund almost your entire flip sometimes. But expensive
- Private lenders — These can be people with money you meet at REIA’s or friends and family. You can ask for much lower rates (9-12%) than an HML. The downside of this is it’s harder for anyone to trust someone brand new.
- Partner up — You can also partner with someone with money. They might help in terms of consulting. This method can be a great way to learn but you give a large portion of the profits to the lending partner; but when starting, it’s important to not be greedy and take this as a learning experience.
- Creative finance — A much more advanced mode of investing and flipping, you use the seller’s equity or take over their payments. There are many ways to do this but you can check out our guide on creative finance here.
Even if you have your own money to flip, we highly encourage you to start practicing the art of leveraging other people’s money.
This is the true path to being a business owner and investor: leverage.
4. Make Offers
Once you’ve found a good deal and have the funds ready, it’s time to make offers. Remember, getting a good deal is a numbers game. You’ll likely face rejections but don’t give up. Keep making offers and be patient. Eventually, you’ll find a seller who accepts your offer.
(Pro tip: it’s important to start making offers early in your career. It’s like Wayne Gretzky said: “You miss 100% of the shots not taken”. You can even make offers before knowing if you have funding in place — many investors operate this way: they make offers then find the money.)
5. Build a Reliable Construction Crew
When you buy a house to flip, you’ll need help fixing it up. You can either hire a general contractor to oversee the work or act as the general contractor yourself and hire different specialists for each task.
Building a reliable crew will ensure the renovations go smoothly.
Tips for finding a GC: talk to many and walk houses with many. Get bids from many. You’ll notice that some will be in the very low range, and other very high. Go with someone in between. The low range will most likely come back for more money.
6. Set Clear Expectations
Before starting the renovations, it’s essential to set clear expectations on what needs to be fixed.
Create a plan for what needs to be done and when it should be finished. Having a timeline and budget will keep you on track and help you avoid any surprises along the way.
This is called a “scope of work”. And everyone should have one for a smooth rehab.
7. Listing
Once the renovations are complete, it’s time to list the house. Work with a skilled real estate agent who knows how to market rehabbed properties effectively.
They’ll help you attract potential buyers and get the best price for your flipped house.
Tip: have a large “Rolodex” of agents in your market. Don’t rely on one. Cause they may be out on vacation one day, or just underperforming. Smart agents love working with house flippers because they know that can be a consistent stream of listings for them.
BONUS: How to Find Deals Directly from Sellers
In addition to traditional methods, here are some strategies to find deals directly from sellers…
As experts in off-market deals, and investors ourselves, we LOVE finding deals off-market, direct from sellers.
The reason is that you find much better deals.
You can negotiate better terms.
You can have a “buffer” or margin of error when you buy at a discount.
And you can sometimes find a deal faster than on the MLS.
To find these sellers, you’ll have to reach out to them ask:
“Are you interested in selling”
Here are a few ways to market to find deals (and you can also check out our comprehensive guide on finding deals here) :
– Use Direct Mail
Send personalized letters or postcards to homeowners who might be interested in selling. Let them know you’re interested in buying their house. It’s a direct way to reach potential sellers who may not have listed their properties yet.
– Cold Calling
Sometimes, you need to pick up the phone and start dialing. Cold calling means calling homeowners and asking if they’re interested in selling. It can be intimidating, but it’s a proactive way to find hidden opportunities.
– Knock on Doors
If you’re feeling brave, you can knock on doors and talk to homeowners directly. It’s a more personal approach, but it can lead to great deals. Just remember to be polite and respectful during your conversations.
Summary
Flipping houses can be an exciting and profitable adventure for new real estate investors. By following this road map, you’ll have a clear path to success. Remember to find good deals, analyze them carefully, secure funding, make offers consistently, build a reliable construction crew, set clear expectations, and use effective selling strategies. Also, consider exploring alternative methods like direct mail, cold calling, and door knocking to find unique opportunities.
FAQs
1. Do I need experience to start flipping houses?
No, you don’t need previous experience to start flipping houses. However, educating yourself about the process and seeking advice from experienced investors can increase your chances of success.
2. Is flipping houses a risky investment?
Flipping houses comes with risks, like any investment. It’s important to conduct thorough research, understand the local market, and carefully analyze each deal to minimize risks.
3. Can I flip houses while working a full-time job?
Yes, it’s possible to flip houses part-time while working a full-time job. However, be prepared to manage your time effectively and seek help when needed.
4. How long does it take to flip a house?
The time it takes to flip a house can vary. It depends on the extent of renovations needed and the local market conditions. On average, it can take several months to complete a flip.
5. How much money do I need to start flipping houses?
The amount of money you need to start flipping houses can vary depending on the location and the scope of renovations. It’s essential to have access to funds for property acquisition, repairs, and holding costs.