Among the many real estate investment business models, house flipping has a reputation for being both highly profitable and highly risky. There are different business models usually grouped under the umbrella term house flipping but at their core they all involve buying a house cheap, and selling it to a third party at a higher price. While is true that house flipping got a bad reputation at the start of the 21st century because of corrupted investors and mortgage brokers, the truth is flipping can be highly profitable. You will, however, need to learn how to get into house flipping in order to avoid expensive mistakes.
Flipping Houses for Beginners
If you are new to house flipping, there will be many questions you need answered. Finding houses to flip, how to buy a house to flip and how to sell that house are things you must master if you want to learn to flip houses. Since you will be risking quite a lot of money, it pays to do your homework and learn as much as you can before you start trading. Unlike other investment models, a flipping deal gone wrong can cause you to lose your life savings or your own home if you can’t keep up the payments until you sell the house and recover your investment (plus any profits).
Finding Houses to Flip
If you want to and you are looking at how to get into house flipping, Fix’n’flip deals are usually the best way to get started. How does this work? You would buy a house that has potential (good neighbourhood, solid craftsmanship and no structural defects) and redecorate it to increase the house value. It is important to avoid overinvesting in those home improvements unless you know they will increase your profits.
DIY home improvement tasks, such as installing vinyl plank flooring on top of the old and tired floors of a house, are usually the best because they won’t cost you a lot of money. Luxury house remodelling, on the other hand, is risky as you may end up with a house that is worth a lot of money but nobody wants to buy. Unless you already have a prospective buyer lined up, spending a lot of money on granite or soapstone countertops just to increase the house value may delay the sale.
Flipping Houses Business Plan: Do You Need One?
A business plan to flipping houses is not necessary, but given that you are investing a lot of money on each deal you should really consider putting everything in writing to clarify your ideas and identify potential issues. For example, a business plan for flipping houses needs to include a contingency plan to reduce your loses if you can’t find a vendor quick enough. You may want to sell at a loss to get rid of the house, or rent it out so at least it pays for itself until you find a buyer. Whatever is your solution, it’s better to have everything well thought off before it actually happens instead of having to react (and waste important time deciding) once a house starts to look like an unsellable lemon.
Learn to Flip Houses from Experts
Your goal as an investor is to find a house in a good neighbourhood that has potential but is available at below market rates. Most of the time, the reason why those houses are sold cheap is because they need work, so figuring out the right balance between the work that needs done and the extra value it will add to the home is key for a profitable flipping business. And it can take some time and specialist knowledge in the building and real estate industries to make that sort of decisions easily. Consider whether you have that knowledge or you need to partner with somebody who does.
Time To Flip The House: Your First Sale
Once you are satisfied about the renovated house, it is time to sell. The process of learning how to flip properties for profit doesn’t end until you have found your first buyer, and that too can be difficult if you have no experience at all in real estate. Most house flippers choose to advertise and show the houses themselves, as real estate agent fees can cause quite a dent on your profits. This means you will need to either learn how to take good pictures, write attractive real estate adverts and negotiate a sale, or find somebody who is good at this who will partner or work with you.
Your real estate flipping business plan should always estimate sale time conservatively, as cutting it too close to the point where you are unable to pay your expenses is a risk that could put you easily out of business. While you can make money flipping houses much quicker than with any other real estate investment deals, the truth is you can also go bankrupt due to bad decisions.