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If you’re interested in real estate (or have watched HGTV recently), chances are you’ve heard of “fix & flip” projects, also referred to as house flipping. Many people will tell you it’s a great source of revenue, but they may not tell you what exactly goes into flipping houses or where to begin to get involved in the house flipping business. This article will teach you about the fix & flip basics and the steps to renovating houses for profit (and to better visualize the process, you can download Innago’s Fix and Flip flowchart above!).
What is a Fix & Flip?
Before you learn how to flip properties, you first need to learn about what house flipping is. In simple terms, a fix & flip is a real estate investing strategy that involves an investor purchasing a below-market value home, renovating it, and selling it for a profit, usually in a short time frame. This may sound like a simple process, but it involves many people, a substantial amount of cash, and a lot of work — steps we’ll explain in detail shortly. If done right, though, house flippers can successfully make a profit and create a thriving business from selling flipped properties.
Flipping houses is more manageable for real estate investors with experience, but anyone can become a house flipper with a good plan and the right resources. Let’s take a look at how to get into house flipping.
How to Get into House Flipping
The first step to beginning your fix & flip journey is research. You’ll want to learn about how house flipping works in your local real estate market, specifically with the types of properties near you, the real estate agents and contractors working in your city, and how other flippers nearby (if there are any) are operating. Having a baseline understanding of how house flipping will work for you is essential before you actually begin the process.
Once you feel you have a good understanding of how to flip houses in your market, you can begin researching specific properties in your area, preferably below-market value homes that would benefit from high-ROI or cosmetic renovations such as renovated bathrooms or updated kitchens. You can either find these properties yourself through avenues like online listings or rely on a real estate agent who can use the MLS to search for homes quickly and efficiently.
The next step in getting into house flipping is financing. Ideally, you’ll have enough cash saved to purchase a home to flip or its renovation costs, but this is unrealistic for most fix & flippers, so many people instead choose the alternative of a hard money loan from a private lender to cover the costs of the purchase and repairs. Private money loans involve an individual lender, rather than a bank, who gives a short-term loan to a borrower, often a real estate investor. Fix and flip loans typically come with higher interest rates than loans like mortgages, but since they’re meant to be paid off quickly, you can likely cover the cost of the loan before interest piles up.
Creating a House Flipping Business Plan
Once you’ve begun the process of flipping houses, you can move forward with the big steps, the first of which is buying a property. Once you’ve found a home that looks promising, put together a rough idea of a budget for the investment property, including the purchase price, rehab costs, insurance, taxes, and closing costs. A good rule of thumb to follow is the 70% rule, which states that you should never buy a property for more than 70% of its after-repair value, or ARV. That way, you can ensure a profit to benefit from and cover any other payments. One benefit of house flipping is that you won’t have to cover ongoing operating expenses after you sell the property, like property taxes, maintenance, landscaping, etc.
It’s also important to note that paying for an inspection is a good idea before signing closing documents on a home. What may look like a simple job updating an old home may become a disaster if mold or foundational issues pop up as you renovate, so it’s better to get an idea of a home’s integrity before you lose the ability to back out of a deal.
Once you’ve completed the purchase of a flipper home, it’s time to budget further and begin the renovation work. Staying on budget allows you to turn a profit without having to dip into savings or other cash reserves you may have. You can start with your rough budget outline from earlier and add specific numbers, tasks, and deadlines to it for different work the house needs, like an estimate of the cost and timeline of new flooring or kitchen backsplash. Then, determine timelines and expenses for contractors (unless you’re a contractor, you should hire professionals for the renovations on a property).
Starting Renovations
When completing the work needed to flip the house, it’s vital to begin with any potential structural or serious issues to the home before working on cosmetic fixes — that way, the challenging and unpredictable work can be completed upfront. Then, focus on renovations and updates that will have a high return on investment, like updates to paint, landscaping, kitchens, and bathrooms. The usual selling features of a home will be even more attractive to buyers when they’re brand new.
After the house is remodeled to your standards, you should hire a professional to appraise the property based on the renovation value you’ve added. This can help you determine a listing price for the home.
Getting Your Flip on the Market
Next comes staging and listing the property. Before potential buyers walk through the home, it’s important to stage the home by using good-quality furniture, cleaning the property, and taking photos of the home that will frame the property attractively. Research shows that properties that are staged sell 73% faster than properties that don’t utilize staging, so it’s worth your time to make the home look lived in.
When listing the property, be sure to use a real estate agent with access to the MLS and a network of other real estate professionals who can help you quickly find a buyer. Don’t be afraid to use online listing websites as selling tools, too, so buyers have more avenues to find your listing through.
Once the home is sold, your work is done — until you start the process over again, of course. On average, flipped houses provide $66,000 in profit for sellers, so once contractors, realtors, and any other necessary parties are paid, you can enjoy the profits from the sale and move on to the next fix & flip property.
Conclusion
Now that you’ve learned about what house flipping is, how to do it, and why it’s such a popular form of generating profits from real estate, you’re prepared to begin the process of fixing & flipping your first property. If you’re looking for a visual plan to help you move forward with a house flipping business plan, download our Fix & Flip flowchart above to get started.