House flipping can be daunting at first. Are you prepared enough? What makes for a good house to flip? How much will it cost? All of these questions go through new house flippers before they start (including me!). This guide is meant to be a complete guide on how to start flipping houses for profit.
Successful house flippers are Patient and Persistent when it comes to buying the investment homes, renovating them and choosing when to exit the process and sell. House flipping deals happen quicker than you'd expect once they get started, but it can take time (weeks, sometimes months) to find the right deal that will make you a profit. Patience is a quality every new house flipper will need because you will lose money at first, and you will make mistakes.
The key is to learn from them and benefit from experience the next time around. When your newest project experiences a setback or unexpected hiccup, you'll need to take a deep breath, assess the problem, and move forward with a solution. New house flippers need to understand that they will face more than one moment when they will question why they ever got into the real estate investing business. To be a successful real estate entrepreneur, you need to learn to be persistent and make every effort to always be moving towards achieving your final goal of selling the home for profit.
Obviously if you are starting out, it would be best to get your feet wet with a smaller investment at first, and work your way up to the larger ones. The first rule of thumb when purchasing an investment home is the more you spend, the more you should make. Starting out small will mean your chance at profit is smaller, but that is OK. Your goal with the first one should be to work on your process, hone your skills and make mistakes. Mistakes will let you gain experience, which will be invaluable to you as you continue to flip larger and larger properties.
You should have a very good handle on this before you jump in and purchase your first investment property. Math is your friend when flipping houses. You need to be able to calculate remodeling costs, factor in a margin for unexpected costs, understand where and how profit is made, and know when a deal makes mathematical sense. This also requires you to understand the neighborhood you plan on flipping the house in. You will end up losing money if you overspend on renovating a house.It is easy to overspend if you don't know the average price per square foot homes are going in a particular area.
As you begin to have past house flips under your belt, you will be able to estimate renovation costs much more accurately. However, in the beginning, it may be best to consult an expert. Experts can be found anywhere. Consider finding a specialist at Home Depot (plumbing, hvac, kitchen, electrical, etc), at flooring stores and your local roofing company.
Important: Keep detailed notes on your costs. This will not only allow you to know the gross margin on your flip, but also give you the best estimating tool for any future house flips.
Successful house flippers do most of the work themselves. However, if this is not possible, you need to find people to trust. This can come from your local Real Estate Investors Association (REIA), mentors that you find on forums online or through an experienced flipper you decide to partner up with.
If you need to hire a contractor for work, search around and get multiple quotes and recommendations. The goal here is not to just get this job done, but to find a person or company you can trust when your next flip needs their help as well.
First and foremost, it starts with a neighborhood that can sustain a house flip. This includes finding areas that have increasing home prices, a population that is growing, and have already had successful flips in them. FlipMarket is a key resource for this type of information. We have crunched thousands of numbers for every US zip code from various sources such as Zillow, Realtor.com and combined it with proprietary data to give you an unprecedented look into how a specific area can handle house flipping.
On top of a great neighborhood as we outlined above, it is important to find homes at a low enough cost that you can still make a profit after all repairs are done. This means that you need to find homes that have a good foundation and are in a reputable school district. Poor foundations can wreck your renovation costs, and sometimes are simply unfixable without costing way more than the property is worth. While you never know if the home buyer will have children, ensuring that the property is in a good school district is the best way to get the widest range of people considering your location as their next home.