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If you’re looking for quick get rich ideas, here are the top tips for house flipping for beginners. Is flipping houses easy? Well, if you want to be a successful house flipper, you have to know the basics of investment in wholesale real estate and check out the latest tips and strategy for selling real estate and making profits.
What is house flipping business? In this business, people invest money to buy a property and then sell it after some time to make a profit. You get a profit in this business, as the value of the property increases with time and the price appreciates.
By frequently buying and selling houses or simultaneously purchasing several properties, you can get a steady income by flipping the purchased properties. So how to start flipping houses for profit? There are literally a million questions to answer! Let’s begin with the basic ones.
Knowing Your Destination: House Flipping Business Plan
Look at the whole picture while flipping houses and give it your 100% commitment.
- Get educated and learn the basics of real estate flipping.
- Understand the math. This means knowing how much you should pay for the house, for fixing it and calculating your profits.
- Research the market, to locate lucrative localities. Markets are different. For instance, $100,000 for a house might be ridiculously cheap in one locality and very expensive in another.
Tip: Know the costs of houses in your area, depending on the locality, amenities, the size and so on.
- Learn about repairing or remodeling costs to assess whether you can make a profit while flipping houses.
- If you wish to make money flipping houses, you have to arrange financing first. There are different types of financing available for house flipping businesses. You could opt for all cash; a bank financing; a home equity loan, financial partners or private money lenders.
Tip: Join Real estate groups or REI clubs and other media groups. Attend meetings, post questions, join forums and learn from the experts.
- Now, look for a property for flipping. Calculate whether you can make a profit after spending for repairs.
- Start networking with contractors to complete the repair work, such as plumbing, flooring, electricity, painting and so on.
- Get the necessary licenses according to your state regulations.
Tip: Getting permits has another benefit. You can access the asking price as well as the selling price and learn about new properties available in the market.
Finding Homes for House Flipping
Are you trying to flip a house for the first time? How to find houses to flip? There are many ways to do this.
- Use the MLS or multiple listing service. This is a list created by real estate agents. You can view all the properties that are on sale, along with location details and other necessary statistics.
Tip: Connect with a realtor to access the information or become a licensed realtor yourself.
- Check out sites that offer information on houses on sale in different areas.
- What is the best way to start flipping houses? Become a member of real estate groups and online forums.
- Check out private auctions and sales while flipping homes.
(Image: Homebay.com)
- Check out the daily newspaper classifieds.
- Connect with wholesalers or hire an agent.
Selecting a Strategy for Successful Home Flipping
There are several strategies to flip properties and make money. Here are some of the common ones, as part of a guide to flipping houses.
#1. Rehab
- Buy a property at a bargain price.
- Do necessary repairs and fixing up.
- Sell it to an interested buyer.
- Make around $15000 to about $40000 in such a deal.
Tip: Estimate costs for rehab for fixing up the property before you buy it.
#2. Wholesaling
If you don’t want the hassles of rehab, you could opt for the wholesaling strategy. You can make money within a few weeks, compared to the Rehab strategy and you do not need much capital. You can also save a lot of time as you do not need to see the houses, after a bit of experience.
- You make an offer for a property.
- Put it under a contract or assign it to the end buyer, at about 70% of its present value after reducing cost of fixing up and your fee.
- You may have to put up a deposit but will get the money back as part of your assignment fee from the end buyer.
Tip: The benefit of wholesaling is that you don’t have to take up the ownership of the property and so you are never part of the title chain.
#3. Birddogging
It is the quickest and easiest way to start house flipping. It also needs zero investment.
- Create your database of real estate or property investors or house flipping companies.
- This will give you leads on real estate buyers and sellers.
- Sell these leads at a rate of $20 to about $100 each.
- You can even start a subscription service and charge members a monthly fee, where members can send you leads on investors for a commission.
- You do not have to buy or sell properties, but just raise leads.
Tip: Generate leads using local signs or the Internet. Place a free ad on kijiji.com or on craigslist.com. Checkout classifieds online.
- Obviously, the downside is that the investors will make more money than a lead supplier.
House Flipping Tips for Maximum Profit
- When you are flipping houses for a living, it must be done quickly, preferably within a year.
Tip: If you own a property for a longer time, it involves more expenses in the form of utilities, maintenance, taxes and so on, thereby reducing your profits.
- You can buy a property, make repairs and then sell it at a profit in the home flipping business.
- You can, alternatively, buy a house in an area with rising value, make no repairs and then sell it at a higher price after a few months.
- Start small with a small rehab budget in the home flipping business.
- Use trustworthy teams in construction and rehab work for successful house flipping.
- Do not over improve or under improve while buying and flipping houses. Do research and conduct upgrades that can actually boost the value of the property.
- Include costs of mortgage, utilities, maintenance etc. while holding the property, while calculating the ARV.
- Know your buyer. For instance, if the neighborhood has plenty of excellent schools, your buyer will have a family with young children. Make the family space attractive. Invest in bathrooms for children. Complete the basement. Again, if the neighborhood has many elderly people and is a retirement locality, make changes accordingly.
- Informing your buyer. Inform your buyer about all the changes that you have made, all structural problems that have been addressed, all electrical changes, etc. Give details of ‘smart home’ features, such as light controls or a sound system.
- Renting out the property. At times, you may find it difficult to sell a property. You have to rent it out till you find a suitable buyer. Understand the rent rates in the locality.
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Estimating Repairs
You have to stay within the budget while repairing houses, so that you make a decent amount when you are flipping houses for profit. If you make an inaccurate estimate of roof, plumbing, floor, fixtures, painting, cooling systems and so on, you’re just setting yourself up for failure in flipping houses. You cannot afford to overestimate or underestimate costs.
- Check out costs at local rehab stores and make a note of it.
- Check out labor and contractor costs by consulting real estate experts.
- Do networking with local services and find out the lowest costs.
- Calculate by estimating the average costs of all the materials needed for a fix and the cost of labor.
Tip: Use discounts, buy on sales, make a survey across different stores and purchase in bulk.
(Source: Lennoxhomebuyers.com)
How Much Money Can You Make Flipping a House?
Do not get carried away with those flipping houses tv shows and commercials showing you can make millions just by flipping houses. You could, but it’s not that easy.
- Houses in the more expensive range can earn you a 54% ROI.
- The amount of profit you make from real estate investing also depends on the state. For instance, for some years flippers in Massachusetts earned more than their counterparts in California in 2013. Generally, houses in New York, New Jersey or in Maryland and Washington could make you some serious money.
- Most house flippers spend at least 20% of the purchasing price on rehab, so try to make a profit of at least 30% on the cost price. However, do not overprice the property, as it might just languish in the market with no takers.
- It also depends on the number of houses you flip. How many houses can you flip in a year? Amateurs can probably sell one or two houses a year. This is because of the amount of time it takes to repair houses. If you have more time and have a trustworthy system, crews, financing, etc. you could do 3 or 4 deals a year.
Mistakes to Avoid in Business Flipping Houses
If there were no obstacles in house flipping business, everybody would have been on it! Check out some of the common problems and how to avoid them.
- Fittings/Fixtures. While investing in new taps or tiles, take care to be aesthetic. But don’t go overboard and select expensive materials, as it will impact your budget and not add much to the overall value of the house. Fix nice matching fixtures that are not too expensive.
- Inspecting the house before closing. Walk around the house and be alert to any red flags, such as structural issues. A major issue, like a roof issue could set you back by thousands of dollars.
Tip: Repairing a roof is expensive, difficult and is also time consuming.
- Research the neighborhood. Check out whether the house is located in a friendly neighborhood, as this could affect your selling price.
- Landscaping expenses. Do not overdo it. Of course, it does offer a good first impression, but expensive landscaping, such as a fountain will reduce your profits a good deal. Don’t invest in luxury features. Invest in visible expenses. For instance, if you change the piping from the old copper one to a brand new PEX, buyers will not see the difference and will not be willing to pay more for the house.
Tip: Just retouch the lawn or add some plants.
- Do not overprice the house, based on what you spent on it. State a price based on other similar houses in the neighborhood or location. If your house sits on the market for too long, it sends a red alert to prospective buyers. Lower the price if it fails to sell and do not be obstinate. Negotiate with the buyer if possible. Holding costs can really cut into your profits.
Wrap Up
If you do it the right way, house flipping can reward you generously and you can make a handsome amount in a short time. Reality check: there might be unpleasant surprises, it could all go terribly wrong as well, as you do not always know what lies behind the walls, a crumbling pipeline perhaps or a foundation issue. What seemed to you like the perfect deal could end up to be a nightmare, with leaking roofs or an unsteady foundation.
Be wise. Follow the tips for house flipping and avoid the common pitfalls of house flipping. Buy at the correct price and make sure you have access to the necessary cash. Make an accurate estimate of the repair costs and decide on a practical and reasonable selling price.
The good news is that you do not have to quit your job to start a house flipping business. If you are interested in real estate, you can keep your 9 to 5 and still make a handsome amount every year.
House flipping could be risky, but if you take your time, learn the tricks and tips of the trade and then dive into the business, you could well be on the gravy train within no time at all!
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