Many real estate investors earn money from flipping houses. Buying and then reselling homes seems like a piece of cake – but learning how to flip a house the right way can be tricky.
In the past years, TV shows about flipping houses have increased popularity of this business. And it does look simple – you purchase a rundown property, rehab it, then sell it for a much higher amount. This makes the process look simple and easy, but the truth is a lot different. Just one wrong step can make you lose all your money and prevent you from making a profitable sale of your property.
What Is House Flipping?
House flipping is when a real estate investor purchases a – typically rundown – property, invests in repairing it, then resells it months later. This is a common way investors earn money from their industry. However, if you try to flip a house the wrong way, you may end up with a huge loss. Here some things you need to know if you want to start house flipping.
1. Have Knowledge about the Local Market
When you plan to flip a house, before you make any kind of real estate investment, you have to do some research about your neighborhood and the local market. What locations are popular living areas? What kind of houses is popular right now? Should you invest in single-family or a multi-family property? You should never spend money on something as expensive as a house before researching. In order for your investment to pay off, you want to be able to flip a house as fast as possible.
2. Know Your Finances
Not only that, but you should always know how much money you can afford spending on a property. This requires some skill and experience as you need to understand home value before you flip a house and profit. The rule is that you should never pay more than 70% of the after repair value. In other words, once you predetermine for how much you can sell a house, you should calculate 70% of that and take away the cost of the repairs. Only then you can be certain you won’t overpay a house that you can’t profit on.
A good real estate investor will always know how to communicate to get a better price. This doesn’t mean only negotiating when you have to make a purchase. You should always try to get a more affordable price, even when it comes to expenses such as repairs or hiring contractors. Keep in mind that you shouldn’t be cheap, as you still want to have high-quality results. However, the rule is simple. If you want to flip a house, the less you invest in it – the higher the profit can be.
4. Have a Network of Potential Buyers
Before you even think about house flipping, you should find a network of potential buyers. Do whatever you can to keep people that plan to buy a house nearby. If you have a list of buyers prepared, your house will be sold in no time. Not only will you flip a house and earn profit fast, but this can help you cut down on the holding expenses, as well.
5. Have a Good Mentor
If you are just starting as a real estate investor, you should always find yourself a good, experienced mentor. Having someone who knows how to flip a house is of a great help, as you can learn from what you see in front of you.
Finding a mentor isn’t as hard as you might think. Even if you aren’t on such a good terms with anyone who would be willing to teach you for free, you can always offer them a percentage of your first house flip. This will not only encourage them to showcase their best abilities, but it will also end with you making a small but worthy profit.
6. Research Foreclosures
As we’ve already mentioned, the less you invest in a house, the more you will profit. This means that you should always try to find good houses that are sold at an appropriate price. Houses that are facing foreclosure are a good choice.
There are several ways you can locate foreclosed houses. Many websites, such as Zillow, have a filter that will show you foreclosures. Another good online source is the Foreclosure.com site. Newspapers often have some listings, as well. The last option would be to look at the banks. Any property that has a “REO” label is a property owned by a bank – or, in other words, Real Estate Owned. Just be sure to check the background of any property before you place your offer!
7. Don’t Be Afraid to Hire a Contractor
Houses that need small repairs you can probably deal with by yourself. However, if a property needs a lot of rehab, you should hire a good contractor who can handle all the repairs. Sure, this sounds like yet another expense, however if you deal with everything independently, you may end up realizing you will waste more money this way then if you hired a professional. Besides, once you flip a house, that expense will be more covered!
Real estate investing can generate a lot of profit, especially if you know how to flip a house the right way. This industry is risky, but with a few smart tips and tricks, you can earn yourself a fortune. However, you may lose everything if you make just one wrong step. This is why it’s important to always educate yourself and to stay one step ahead of your competition.