In the past few years, there has been an increase in information and individuals sharing their success stories of house flipping. Flipping houses is a great way to make money, the business is extremely lucrative for individuals and companies that can commit their time. Given the right opportunity, you can make significant returns on your investment quickly. In this blog, we will run through the benefits and how to get started in the house flipping business.
What is House Flipping?
Let’s start with the basics. What exactly is house flipping? House flipping is when a buyer purchases a distressed property, fixes it and then resells it for a profit. These properties are usually found through bank short sales, property auctions, or foreclosures.
Before jumping into the business of flipping it is important to understand the pros and cons of the business.
Advantages of House Flipping
House flipping is a high-reward business so it makes sense that the first advantage of house flipping is profit.
- Profit – As of March 2022, the average net profit for house flipping was $30,000. This is a large profit that is usually obtained in a month or so. The profit you receive will vary based on where you live but typical ROIs are above 100%
- Diversify your investments – Investing in different types of assets is a great way to reduce risk. Real Estate is a long-term investment that can allow you to increase your cash.
- Be your own boss – You can make your own hours and take off when needed. It is important to recognize though, that this is a job that will require a lot of your time in the beginning.
Cons of House Flipping
Where there is high reward there is almost always high risk. In Real Estate while you can make a lot of money if not done properly you can lose money just as quickly.
- Stress – The business is stressful and time-consuming. Going into the business it’s important to expect the unexpected. Things may take longer than expected and if it’s your first time you will make mistakes. As you grow into the business less stress and mistakes will occur.
- Holding Costs – A typical rule in real estate is to sell the property quickly. The longer you own the property the more money you are losing. After renovations are completed you will still be responsible for the mortgage on the house. Because of this, experience flippers will try and sell the home before the first mortgage payment is due.
If you understand the pros and cons of house flipping and still want to get into the business there are a few steps you can take to get started.
- Knowing the area. This may be one of the most important steps as this will play a big part in determining your ROI. Take some time to research the real estate market and choose the right location. You can work with a real estate agent to help you find the right home and advise you through the process.
- Setting a Budget. You will need to acquire funds and ensure decisions made will keep you aligned with your budget. You should aim to make between 10%- 20% in profit when you sell a home. A good rule of thumb is to budget based on the 70% rule.
- Finance your project. There are a few ways you can finance a house flip. If you do not have the cash to hand over you can get pre-approved for a loan through a bank or, you can reach out to individual investors and see if they would like to invest in your property. Keep in mind that if this is your first flip – a bank may be the best option.
- Buy The House. Now that you have a budget and the money to put into your project it’s time to purchase the house. This can be one of the most challenging aspects of the process. Good options to consider will include, foreclosure, distressed, or bank-owned properties.
- Flip and Sell the Property. Once the repairs and updates have been completed it’s time to resell the property and get your cash. Again, the longer the house sits on the market the more money you lose to this should be a fairly quick process. If you do not have a portfolio of potential buyers you can work with a real estate agent to sell the house. Agents can help you sell the house quickly by listing it in the MLS database and help you to decide the right price.
House flipping can be a great business to get into and a great way to build wealth. It is important not to underestimate the time or money required to be successful in the business and remember it is never as easy as they make it look on TV.