So, you want to get into house flipping. You're not alone — since the early 2000s, there's been a huge uptick in the number of people looking to make money by buying homes, fixing them up and reselling them for a profit. And with shows like HGTV's Fixer Upper leading the charge, it's no wonder that more and more people are considering a future in real estate.
Of course, as with any industry, there's a lot more to flipping houses than meets the eye. So if you're thinking of taking the plunge, here are five steps you’ll need to take to ensure a profit and avoid as much headache as possible.
How House Flipping Works
In general, the goal is to buy low and sell high. And you also want to try and resell the house as fast as possible to limit your risk. Remember that every day that passes as the owner of the house, you’re losing money to general ownership costs (utilities, insurance, taxes, etc.)
So what if property prices aren’t skyrocketing in an area? While you might not be able to make as much money from the property value appreciation, you can still profit from improvements you make to the property.
For example, let's say you purchase a fixer-upper in a good neighborhood. You put in some work to renovate it and breathe new life into it. When you put it back on the market, you can charge a higher price that reflects its new condition. If all goes well, you'll make a profit from both the appreciation of the property and the additional value you've added with your renovations.
Of course, house flipping isn't without its risks. If you don't do your homework or plan carefully, you could end up losing money instead of making it. But if you're mindful of the risks and willing to put in the work, flipping houses can be a great way to earn some extra cash.
Check out the 5 steps in the next section with pro tips on the house flipping process.
How to Start Flipping Houses
1. Create a Business Plan
The first step to flipping houses is creating a business plan. This helps you set goals, track progress and make sure your house flip will be profitable.
Your business plan should include:
- Market research
- How much money you're willing to invest
- How you will find properties to flip
- What type of properties you're interested in flipping
- How you will finance your flips
- Which renovations you can take on yourself and which will need professionals
- Backup plan in case a house needs extra repairs or doesn't sell as fast as projected
2. Find the Right House to Flip
The most important factor in any house flip is finding the right property. To do this, you'll want to look for three things: a good location, a below-market value purchase price, and a property that's in sound condition.
Location is key because it will affect how much you can sell the property for later on. Look for neighborhoods that are growing or have recently undergone redevelopment. These areas will likely see an increase in property values, which means you can sell your flipped house for a higher price.
You'll also want to make sure you're not overpaying for the property. Look for houses that are priced below market value, as these will be easier to turn a profit on. You can find out the market value of a property by looking at real estate price comparisons in the area.
How much should you pay for a house you plan to flip to ensure your sale is profitable?
The 70% rule is a good guideline to follow when deciding how much to pay for the property. This rule says that you should pay no more than 70% of the after-repair value (ARV) of the home, minus the cost of repairs that are needed. So, if a home has an ARV of $150,000 and it needs $25,000 in repairs, you would want to pay no more than $80,000 for the property.
Finally, you'll want to make sure the property is in sound condition. This doesn't mean it has to be perfect, but "the bones" should be good. That means the overall structure, roof and mechanical systems (electrical, plumbing, etc.) are in good shape. Otherwise, you could end up spending big bucks on repairs.
So you've found and bought the right house? Now the fun begins!
3. Plan and Design Your Flip
After you've found the perfect property to flip, it's time to start planning and designing your flip. This is where you'll decide how you want to renovate the property and what kind of style you want to go for.
Your goal should be to make the property look as good as possible without spending too much money. Hopefully you’ve chosen wisely and the house doesn’t need any major structural repairs. So you should focus on cosmetic renovations that create an updated look without a huge investment.
Some cosmetic repairs you may want to consider include:
- New fixtures (lighting & plumbing)
- New flooring
- Updating the kitchen or bathrooms
If you want to get even more creative, you could:
- Add built-ins
- Remove some walls and create an open floor plan
- Finish the basement or attic
PRO TIP! - Instead of relying on your imagination to see the possibilities of a property, use a 3D home design program like Cedreo.
Cedreo lets you easily create floor plans , 3D renderings , and exterior designs for your house flip. With Cedreo, you can upload the home's current floor plans or start from scratch. Then, use the integrated estimating software to estimate the cost of different renovations to help make sure you stay within budget.
Plus, Cedreo's 3D rendering capabilities let you see what the finished product will look like, so you can make sure your house flip looks exactly how you want it to.
4. Renovate the House
Now that you know which upgrades you want to make, it's time to actually do the work. For this part, you'll have to divide up which renovations you want to tackle yourself and which require a professional contractor.
Ideally, you'll want to do as much of the work as possible yourself to save money on labor costs. But there are some cases where it's best to leave the work to a professional.
For example, if you're planning on making structural changes to the house or doing work that requires a building permit, you'll need to hire a licensed contractor.
The same goes for any work that involves electrical, plumbing or gas lines. It's best to leave this type of work to the professionals to avoid any accidents or costly repairs.
Once you've completed all the renovations, it's time to stage the property and get it ready for sale.
5. Sell Your Flip
You've done it — after months of hard work, your first flip is ready to sell! It's got a coat of fresh new paint, the new floors are stunning, and maybe it's even got a new kitchen. Now it's time to put your home on the market and make some money.
Here are a few tips that’ll help flip your house for a profit.
- Find a good real estate agent who knows the local market. They'll help you price your home correctly so it'll sell quickly while still making a profit. Check out the article Home Builders and Real Estate Agents: Friends or Foes to see how to effectively collaborate with a real estate agent.
- Don't forget the basics of selling a property: make sure it's clean, well-lit, and clutter-free before showing it to potential buyers.
- If you're not able to stage the property physically, use a 3D program like Cedreo to stage the property virtually. That way you can show potential buyers how it could look once it's fully furnished.
With a little bit of effort, you'll be able to sell your flip quickly and for a good price. Congratulations — you're now officially in the real estate business!
The Bottom Line
Learning how to flip a house can be a great way to make money in the real estate market, but it's not without its risks. To reduce your risk of losing money on a flip, make sure you:
- Research the local market and find a property that's priced below market value
- Create a realistic budget and schedule for the renovation process
- Choose the right upgrades to add the most value to the property
- Hire a good real estate agent to help you price and sell the property
And don't forget, an easy-to-use 3D home design program like Cedreo is invaluable to house flippers!
- Import existing floor plans and create 3D home designs faster than ever
- Use 3D renderings to preview how a property will look
- Stay on budget with the integrated estimation software
Try the FREE version of Cedreo today and see how it can help streamline your house flipping process.