Flipping houses is a popular way to make money in the real estate industry, and it's easy to see why. By buying a property, fixing it up, and then reselling it for a profit, you can earn a substantial return on your investment.
However, starting house flipping can be daunting, especially if you're new to the industry. That's why we've put together this “flipping houses 101” guide to help you understand the basics of flipping houses and how you can start doing it as a real estate agent.
What is House Flipping?
House flipping is buying a property, renovating it, and then selling it for a profit. In other words, a person who purchases a house that needs work or is undervalued invests money in repairs and improvements to increase its value and resells the property at a higher price.
The goal of house flipping is to make a profit on the difference between the purchase and selling prices while also creating value for buyers by improving the property. House flipping can be profitable if done correctly, but it requires significant knowledge and resources to navigate the process successfully.
How long does it take to flip a house?
As not all property renovations require the same amount of money, the time required for the project will also differ.
In general, most house flipping projects take between 3 and 6 months to complete, but some projects can take longer or shorter depending on several factors, such as:
- Time required for building inspections
- Condition of the property
- Scope of the renovations
- Local real estate market
As a very broad recommended guideline, you could expect it to look like this:
- 3–6 Months – Highly experienced house flippers
- 6–12 Months – Reasonably experienced house flippers
- 12–18 Months – Inexperienced home flippers
However, completing a house flip in 12 months or less is realistic.
During the flipping process, several stages can impact the timeline, including:
- Property acquisition
- Obtaining necessary permits and approvals
- Demolition and construction
- Marketing and selling the finished property
Unexpected delays can occur at any of these stages, such as:
- Issues with contractors
- Unexpected repairs
- Changes in market conditions
To maximize profits and minimize risks, it's essential to have a detailed plan and timeline for each stage of the flipping process and contingency plans for potential setbacks. Working with experienced contractors, real estate agents, and other professionals can also help speed up the process and reduce the likelihood of costly mistakes.
Mistakes to Avoid When Flipping Houses
Flipping houses can be a profitable venture, but it also involves risks and challenges. To help you avoid some common pitfalls, here are some mistakes to avoid when flipping houses:
- Not having enough money
- Not dedicating enough time to the process
- Working with an inexperienced team
- Lacking the necessary skills and knowledge
- Rushing through the process
How to Start Flipping Houses
Real estate flipping houses can be a lucrative venture if you possess the right skills, knowledge, and resources. However, it can also be financially risky if you don't know what you're doing. To get started, here are seven steps for how to start house flipping:
1. Establish your Budget
Before getting started, you must research the real estate market and choose the right location to invest in. You should then determine how much you can afford to invest in a property, including the purchase price, renovation costs, and other expenses like taxes, insurance, and utilities.
2. Assemble Your Team of Experts
Specific skills and knowledge will make you more successful when flipping houses. For example, knowledge of construction, real estate, and design are good skills. If you don’t have those skills, you need to hire professionals who do.
Assemble a team of experts who can help you find, fix, and sell the property, such as:
- Real estate agents
- Insurance agents
You’ll want help from real estate agents flipping houses and contractors to help you understand the extent of the work that needs to be done.
3. Secure Financing
A significant financial setback is not having enough money to finance your project. Make sure you have enough cash on hand or access to financing. Determine how you'll fund your house flipping project, whether it's through a traditional mortgage, private lender, or your funds.
4. Find the Right Property
One of the most challenging aspects of house flipping is identifying the right property. This is because the present house cost is not the only consideration; you must also contemplate the potential resale value to ensure maximum profit. Look for distressed or undervalued properties with the potential for a profitable flip. Consider factors like location, market demand, and potential renovation costs.
5. Make an Offer
Once you’ve found the perfect house to flip, you can make an offer and close on the property. To make an offer on a property, having your financing in place is essential and ensuring that the property is a good fit for your needs.
Experienced house flippers often use a home's after-repair value (ARV) to determine the most appropriate bid amount. The ARV represents the property's value after all necessary renovations.
Ensure you know the maximum amount you can pay for that house while making a profit. Having multiple properties in mind as backup options is always a good idea.
6. Renovate and Improve the Property
If you’re new to house flipping and have a restricted budget, you can save money by investing in building sweat equity. This concept refers to the unpaid labor that you contribute to the project, which can be in terms of either physical labor or mental effort.
Otherwise, you can work with contractors and designers to renovate the property to increase its value. Before hiring contractors, check their licenses and references, and ensure their quotes fit within your budget and proposed timeline.
7. Flip The House
After the renovation work is done, the next step is to sell the house, and time becomes a critical factor, as the longer, the house remains unsold, the lesser profit you'll make. Therefore, your objective should be to promptly make any improvements required and sell the property as quickly as possible. You can sell it yourself if you’re an experienced real estate agent. Otherwise, it would help if you collaborated with a real estate agent to assist you in targeting the right buyers and expanding your market reach.
Do I Need a Real Estate License to Flip Houses?
No, you don't need a real estate license to flip houses. However, having a real estate license can be beneficial. Real estate agents deeply understand the housing market, which can help you identify properties with the potential for profitable flips.
In addition, one of the most significant benefits of having your real estate license is having direct access to multiple listing services (MLS), which is responsible for around 80% of all properties sold and far exceeds other forms of marketing for flipping houses.
Without a license, it would be best to seek guidance from an experienced real estate agent to help you:
- List the house (in the MLS database)
- Understand market fluctuations
- Determine the right resale price
- With advice throughout this home-buying process
- Gain access to other resources that can aid you in the buying and selling processes
- Research comps and price-growth projections to find neighborhoods and homes that will give you the best ROI
A real estate license will also allow you to represent yourself legally in real estate transactions, giving you more control over the process and saving you money on commission fees. If you plan to buy houses to flip regularly, obtaining a real estate license is wise.
Remember that the requirements for getting a real estate license vary by state. To maintain your license, there may be education and training requirements, licensing fees, and continuing education requirements.
Therefore, choosing an education center that meets your state's requirements while providing top-notch education, like VanEd Real Estate School, is essential. To get your real estate license and start your career, head to our real estate license webpage; all you have to do is choose your state and get started!
Written and Published by: VanEd