How To Flip Properties
If you’re new to hosue flipping or considering entering this space, you’ve come to the right place.
In this article, we’re going to dive into a brief guide on what you need to know to have success.
So, without further ado, let’s begin.
The Basics
The best place to start is by summarizing the basics. Flipping properties is a real estate investment strategy that begins with an investor buying a property to fix it up and sell it for a profit.
The first step is creating a budget. If you’re looking for a house or property to flip, you need to ensure you have the finances for the project. The national average cost for a flip is $47,903. Obviously, many cost more and many cost less, so conduct thorough research!
Flipping houses, in most cases, requires a lot of cash. Accurately estimating the costs is a vital part of turning a profit. Let’s look at the main factors to take into consideration.
Acquisition, Insurance, and Ownership
A property is more than just its asking price. If you’re going to flip a property, you need to account for taxes, insurance, title fees, financing fees, and additional acquisition expenses as well.
Many flippers follow the “70% rule.” This rule states that flippers avoid buying properties that cost over 70% of the after-repair value (ARV), which is the estimated value of a property after a complete flip minus repair expenses.
Let’s look at an example to flush this out a little more. Say you find a home listed for $245,000 in a neighborhood. You do your research and believe you could sell the place for $320,000 after taking care of certain repairs. Next, you go to a general contractor for an estimate on the cost of repairs. They estimate $40,000. If you use the 70% rule, you’re looking at:
(320,000 x .7) – 40,000 = $184,000
Because the asking price is $245,000, unless you get the seller to come down to $184,000, you probably shouldn’t move forward.
Note: Here is a link to a 70 rule calculator if you want to try out your own figures.
Budget
Obviously, setting a budget is a critical foundational step. Other than proceeding efficiently, this is probably the most important thing you can do when flipping property. Staying on budget ensures you turn a profit and retain personal funds and savings.
Many sellers aim to make a 10% to 20% profit for each property. It’s always a good idea to research average prices in the area to have a solid estimate of what you can reasonably sell property for.
It’s also wise to budget for a full inspection. These typically cost $500 or more. While they’re not cheap, they’re well worth the expense. These inspections help you understand repairs and maintenance needed to flip the property. And you can change your mind right after the inspection process if you realize the undertaking won’t be worth it for you.
Property Research
Next, you want to find property that only requires cosmetic updates. And not only that, but it’s also ideal if you can find affordable property in expensive areas.
A good example of a cosmetic update is new paint. A fresh coat of paint has a high return on investment (ROI). It’s one of the least expensive ways to enhance the value of a property.
Financing
Once you decide which property you want to flip, you’ll most likely need a loan to secure to purchase the property.
Getting a loan for property you plan to sell right away is different than getting a loan for somewhere you want to live. Purchasing property to flip it is considered an investment, which alters your eligibility for a mortgage loan.
So, it’s important to read up on loans and make sure you’re doing what’s best for your situation.
Repairs and Renovations
Once you secure the financing and pay for the property, it’s time to repair and renovate. Hiring a contractor is necessary unless you’re a contractor. Contractors have knowledge, connections, and expertise that will help immensely throughout the renovation process.
If there’s one place in a home you need to give special care to regarding home renovations, it’s the kitchen. Start by looking for affordable improvements that can be made without completely transforming the entire space. Here are some ideas to get you started:
- Repaint cabinets instead of replacing them (this could save a few thousand dollars).
- Install a composite countertop instead of granite or marble (this could save a couple hundred dollars).
- Upgrade to energy-efficient appliances. Be sure to find ones with proven claims, though.
- Change out old doorknobs and handles on sinks.
- Upgrade faucets. A sleek modern faucet is a nice little touch for most kitchens.
Aside from kitchens, bathrooms are the most vital spaces to renovate. Bathrooms have several expensive components that significantly alter their value.
If you need to replace the flooring in the property, hardwood is usually the best option. Buyers typically expect it, generally like how it feels and looks better than other options and are often willing to pay more for properties with it.
Read this article we produced for more information on high ROI repairs and renovations.
Now that we have some basics down, it’s time to move onto to how to find the right property.
Finding the Right Property
Clearly, a vital component of flipping properties is knowing how to find the right ones. If you can’t buy low and sell higher, none of this will be worth your time. So, how can you learn how to find the right property?
Establish Your Criteria
What type of property are you looking for? Are you interested in single-family homes, condominiums, or multi-unit properties? What is your budget for acquiring and renovating the property?
Having your criteria set will help you narrow your search and provide house flipping ideas as you determine what’s important to you.
Location, Location, Location
A property’s location can significantly impact its potential for profit. Look for properties in neighborhoods that are experiencing growth, have good school districts, access to amenities, and a strong job market.
Understand Market Trends
Do your research. Staying updated on current real estate market trends is essential for finding the right properties to flip. Study the local market’s supply and demand, price trends, and average time properties spend on the market. Use this information to glean insights and make informed choices.
Hone in on Distressed Properties
Distressed properties, which include foreclosures, short sales, and properties in need of somewhat significant repairs offer lucrative opportunities for house flippers. These properties are typically sold for affordable prices due to their condition or the urgency of the sale. Just be careful you have a clear picture of what you’re getting into.
Network with Professionals
Building a strong network within the real estate industry is a smart move. Real estate agents, brokers, property managers, and even other flippers can offer information about distressed properties or off-market opportunities. These professionals can also help you scour the market and discover hidden gems that might not be publicly listed.
Search Online Listings
Online platforms and listing websites have become great sources for house flippers. Websites like Zillow, Realtor.com, and Redfin provide detailed property listings, including photos, property descriptions, and asking prices. Utilize filters and search criteria to target properties that fit your budget and provide you with the right opportunities. Remember that these listings are just a starting point. You need to conduct additional research and do your due diligence before making an offer.
Attend Auctions
Property auctions, both online and offline, are often the bee’s knees for house flippers. Auctions usually feature distressed properties or homes that need to be sold with haste. Participating in auctions requires preparation, though, so ensure you know the auction process, terms, and financing options beforehand.
We recommend you attend a couple auctions as an observer before actively participating. This familiarization will help you when you begin to participate.
Consider Off-Market Opportunities
Not all potential flips are listed on public platforms. Some property owners might be willing to sell directly if a great offer comes through.
Direct mail, postcards, or local newspapers are some examples of creative ways to get the attention of homeowners considering selling who are still on the fence. You may be the first (and only) person in line to buy their house, which may help them avoid the hassle of having to list.
While this approach might require more effort, it can lead to golden opportunities with less competition and potentially better deals.
What About the Buy and Hold Strategy?
If you do find the right property, and things are going well, you may consider renting instead of flipping.
Buying and holding is a real estate strategy where you would buy property and hold onto it for a while (rather than sell it quickly).
Unlike flipping property, this is a long-term investment. You probably will choose this method if you want monthly cash flow from rental income. Properties range from single-family homes to apartment complexes to condominiums and more.
Buying and holding typically goes hand in hand with renting out property. There aren’t many investors that can (or would, even if they could) leave property vacant for an extended amount of time.
Read our article here with the pros and cons of buying and holding versus flipping properties. There isn’t one that’s necessarily better than the other. They’re different and your choice will come down to your business strategy, preferences, and opportunities.
Marketing Your Flipped Property
If you decide not to buy and hold, then marketing your property for a quick sale is going to be vital. People need to know about your property if they’re potentially going to buy it.
Tip #1: Use High-quality Photography and Staging
Pictures and videos will outperform most written descriptions, especially when it comes to selling houses. If you can’t develop great images, then hire a professional photographer. The investment is worth it.
Staging is also crucial because it gives the property personality and appeal. Modern and attractive furniture can help potential buyers see your place as their future home.
Tip #2: Develop an Effective Online Presence
Create a website or landing page. Join social media if you’re not on platforms already. Engage with relevant real estate communities.
Tip #3: Leverage Lising Platforms
Listing syndication could significantly help sell your property faster. Getting on sites like Zillow, Realtor.com, and local MLS (Multiple Listing Service) platforms is important.
The way you write your listing is also important. Write listings that provide detailed information on house specifications and features. You want people to have a clear understanding of the house just by reading the listing. Highlight renovations for added persuasion.
Tip #4: Host Open Houses and Virtual Tours
Open houses matter because you want people to have opportunities to see the property in-person. Many people still prefer tours where they can get a firsthand feel for homes. Furthermore, these tours allow you to create personal connections with potential buyers.
Virtual tours continue to rise in popularity with the advancement of technology. Virtual tours offer an immersive, 360-degree digital view of the property. They allow viewers to explore the property’s interior and exterior at their own pace, creating a convenient and interactive experience.
Conclusion
If you’re at this point in the article, that means you’ve absorbed a lot of important information. You’re now in a better position to successfully flip homes.
