There are few people who’ve watched those house flipping shows without fantasizing about doing it themselves, earning big bucks in just a couple of weeks. While they might be considered “reality TV,” unfortunately, that term is only partially true.
The reality is, there are investors who buy homes and flip them, getting a hefty return in a short time. After analyzing end-of-2020 data, the St. Louis Post-Dispatch revealed that average gross flipping profits were the highest they’d been since at least 2005 at over $66,000 above the median purchase price. But there’s a lot more that you don’t see as it involves an extensive amount of work not to mention the risk.
While it is possible to earn tens of thousands of dollars flipping a house, it’s also possible to lose money especially if you don’t understand what fixing and flipping homes truly involves. The more you’re prepared, the more likely you are to earn a profit.
Find the Right Real Estate Market
Not every market is good for flipping houses. For example, if you only have $20,000 to work with, a market filled with million-dollar homes is not where you want to start. The less cash you have, the lower the price of the homes you can afford to invest in. At the same time, poverty-stricken neighborhoods catering to very low-income owners usually aren’t the best bet either.
Do some research to determine which markets you can afford to flip that first home in. For a first home, you’re usually better off looking in a stable working-class neighborhood or a soild middle-class community.
Create a Business Plan and a Budget
Flipping homes is a business which means you must have a business plan that includes a budget and a timeline. In the beginning, you might want to start with a house that just needs some cosmetic updates, such as new paint, flooring, and fixtures. Avoid homes with structural problems unless you like losing money.
Remember that along with budgeting money for repairs, you’ll need to budget time as every day you own the home, you’ll have to pay more money in taxes, insurance, and interest.
Before considering a purchase, think about how you’re going to pay for it. Paying cash is best as you’ll avoid paying interest and occurring debt before the home sells. If you don’t have the money, there are financing options available, although most mortgage products aren’t offered for flipping a house as lenders aren’t interested in taking on that risk.
Taking out a short-term loan with a private lender, ranging from six months to a year, may be possible but these loans come with high interest rates and may require a large down payment of up to 40 percent. If your primary home has increased in value, a cash-out refinance could be an option. Or you might take out a home equity line of credit that uses the equity in your home as collateral.
Before buying your first flip you’ll want to build relationships with contractors, including electricians, plumbers, roofers, general contractors, along with lower-cost handymen, unless you plan on doing all the work yourself. Contractors can be a critical part of successful home flipping, and there are some jobs that require an expert.
Buy the House
Once you’ve got the financing secured and have developed a network of contractors, you’ll need to find a house at the right price. It needs to be under market value but with wide enough margins to cover all the expenses, not only the renovation costs, but realtor fees, and two rounds of closing costs, when you buy and when you sell. Using a seller close closing costs calculator can help you determine the total.
Once you find that gem, act quickly before someone else comes along.
Sell For a Profit
Once all the renovations are done, it’s time to sell and reap the profits of all your efforts. Hire an expert realtor who knows the market well and how to price the home to sell. This is what makes flipping fun, it’s your reward for that hard work, time, and money put into the process.