HGTV has definitely piqued interest in flipping houses in recent years. How many of us have spent countless hours slunk in our couches, indulging in our favorite shows, and dreaming of our own future fix-and-flip success story? You can have that success story. Just without a show host and camera crew.
So what does it mean to flip houses?
Simply, it’s buying a house or other property in poor condition or at below-market value, making minor or major improvements, then selling it for a higher net financial gain. You may have also heard it referred to as “fix and flip.” Think of it as a relatively quick way to profit in the real estate market.
You might wonder how it compares with wholesaling real estate, another fast money-making strategy. There are several key differences. With wholesaling, you never actually own the property; you’re the middle person or broker between the seller and end buyer. Plus, there are no improvements or renovations being made. Lastly, you need little or no money out of your pocket.
With flipping, on the other hand, you do own the property during the time it’s undergoing renovations. This is the part that will require upfront money — for down payment, closing, realtor fees, mortgage payments, property taxes, labor, materials, and any permits required for renovations.
But here’s a caveat to the point about upfront money: You may not need your money to do this. Of course, you can if you want, and if you’re financially solvent enough to do so. But technically, you can still get away with not investing a single dime of your own. Rather, it’s up to you to either line up a potential investor to cover these costs then pay them back with proceeds from selling the renovated house, or secure either a private money loan or a hard money loan. For all the money that goes into the improvements on the front end, though, you can more than make up for that when you sell it. Your profit can vary by the local housing supply vs. demand, the kind of improvements you made, or economic considerations, for example.
How does it work?
The house-flipping shows tend to leave out some key things. While there’s no real set-in-stone process to flipping houses, there are certain things to do to make it a more smooth, profitable experience.
- Check out the real estate market in your area to see what is available and the general comps. You want to make sure you’re getting a good deal when you’re ready to buy.
- Figure out what your budget is, not just for purchasing the house and all the associated costs, but for the renovations, too, whether you choose to self-finance them or contract them out.
- Assemble a business plan — outlining the scope of renovations, the budget to complete it all, and the timeline for completion.
- Secure your funding for renovations (again, if you’re not self-financing) from a private money lender or a hard money lender (make sure you’re comfortable with the higher interest rates and possible points). This is where your business plan will come in handy.
- Research and meet with contractors ahead of time. When you find an ideal property to fix and flip, you can start getting quotes right away for the work you plan to have done. Of course, minor cosmetic updates are simple enough to do on your own. But anything more will likely require the pros, especially if there’s a lot of work to be done or you’re working on a timeline for flipping.
- Now for the really fun part: Hunt for a house to buy and flip. If you’re just starting out, don’t overextend yourself. Zero in on below-market fixer-uppers — foreclosures, auctions and older homes are popular choices. You don’t have to limit yourself to these obvious targets, though. Look for properties that may require only cosmetic touches that can make your flip ready to move in. A note of caution: The house may look like it only needs minor work; make sure to hire an inspector to go through and to make sure everything is up to code or not in desperate need of repair.
- More fun, part 2: Start the transformation. The most common fixes? Fresh paint. New carpet and/or flooring. Modern fixtures. Updated appliances, especially energy-efficient ones. Landscaping in front and back, such as planting flowers and trimming foliage. If you’ve already done this a few times and are comfortable with the process, you could explore houses needing a bit more TLC. More involved work could include structural things like knocking out walls, redoing electrical wiring, replacing windows and doors, building an addition or replacing the roof.
- The moment you’ve been waiting for: Selling it! You could start this part much earlier, just as you’re buying the house, by finding an investor who is ready and able to purchase your house after the improvements are done, or who can fund the renovations and be paid back for a profit from the house sale. Or, you can wait to sell it until after you’ve made the house move-in-ready for an individual or family who would like to call it “home.”
Advantages of flipping houses
There’s definitely money to be made in the fix-and-flip market — and quickly. Even if you do use your own money for improvements and repairs, you’ll be able to recoup much more than what you put in. There’s no limit to what you can earn. It all depends on how ambitious you are — and how patient. Even cosmetic upgrades don’t happen overnight. But you can make a decent profit with a few months of renovations.
You don’t have to flip houses for a full-time living, but you can do it part-time whether you have another job or not. It could fund your vacations, your kids’ (or your own) college tuition, a new home, your retirement.
As with wholesaling, you don’t need any required formal education or training of any kind to get into this. “Required” is the key word there. Just because it’s not mandated doesn’t mean you can’t benefit from taking a class (or a few) from a seasoned expert.
At Clever Investor, we’ve been doing the fix-and-flip thing for years and have taught and coached others to do the same. We’d like to share in-depth details about flipping houses with you for free. Find out if it’s for you. When you’re ready, we’re happy to talk with you and help you get started in this profitable niche market.