Fixing and flipping houses has been growing in popularity year after year during the 2000s. It is perhaps the easiest way to get into real estate investment, as long as you understand the pitfalls and the processes needed.
Last year saw a rise once again in flipping activity. A total of 323,465 properties were flipped in 2021. This is the highest number of homes being flipped in 15 years. Moreover, 2022 looks to be following suit. However, while fixing and flipping can offer an entry-level way into real estate investment, an understanding of how it works is necessary to be successful.
How Easy Is It to Start Flipping Houses?
It is very easy to enter the world of fixing and flipping. There are no qualifications needed as such, some permits may be required, but generally, anyone can get involved. However, the difference between a disastrous flipping experience and a successful one will be understanding the rules that need to be followed
Launching head-on into a fixing and flipping project could result in a big financial loss and a huge waste of time. Your credit could be adversely affected, and you could end up with a property that you cannot sell. It is therefore worth taking the time to construct a solid flipping a house checklist as some essential rules should be followed.
What Do You Need to Know When You Start to Fix and Flip Houses?
As with anything, taking on a task that you have never done before will involve a learning curve. If you have experience in the housing market, renovations, or construction, then this will help in some areas.
The biggest problem with your flipping project is going to be inexperience. Failing to consider potential roadblocks and problems ahead of time can lead to delays. These delays can prove to be costly and could affect your ROI.
Fixing and flipping can take time. The bigger the project, the more effort it will take. This area is addressed further below, along with four other rules that you should try to follow.
1. Arrange Suitable Financing
Being able to self-finance a house-flipping project is in some ways the most desirable of all financing options. One of the benefits of financing the whole operation yourself is that all the proceeds from the eventual sale will go back to you alone. However, this also leaves you with the full risk if the property market unexpectedly crashes, or if buyers’ demand continues to fall.
Bringing in an investor may be preferable to some. Although the profits will be diluted, less of your cash will be at risk.
Traditional financing options may not be suitable for everyone. If you cannot find a co-investor, and your credit rating is not good, then you may need to look at private loans. You can finance a fix and flip through a hard money loan, and these are often used this way. This is a short-term lending option with a fixed interest rate. These are favored by house flippers, as the property can be leveraged against the loan.
2. Stick Within Your Budgets
It is very important to try to stick within whatever budget you set for your project ― especially the first one. It is easy to get carried away and take on too much.
The more money you pour into your flipping project, the more risk you take on. Breaking a budget could see you having to take out further loans. As a result, this could end with little to no profit and potential debt.
3. Understand the Time It Takes to Fix and Flip
This is one of the most common mistakes first-time house flippers make. It can take months to fix up a home. This is even truer if you are attempting to fix and flip houses part-time.
Many people try to flip houses part-time, and this is wise at the beginning of a new investment career. Having a full-time job means that you have a steady income and are not reliant on the future sale of the property.
It could take 6 months to fix a house up so it is ready for market. Then there is the selling time to take into account. When selecting a home to buy, carefully consider how much is realistically needed, and how much time it will take. Hiring the right people for the tasks will help a lot here, but many first-time flippers try to take on too much work by themselves.
4. Calculate the Potential ROI
Try to gain an understanding of the local market before buying any homes. You can use comparables to try to calculate the possible return on your purchase.
Comparing other similar homes and their selling price to your property should help to gain an insight into its potential future value. This is important because otherwise, you are buying property blind with no real idea of what return you could make if any.
While flipping is becoming more popular, profits are dropping for house flippers. The average ROI in Q2 of 2021 was 33.5%. This was down from 37.2% in the previous quarter. This makes it even more vital to find a way to at least estimate what ROI you could make before you buy anything.
5. Choose the Right House
Of course, choosing the right property will make a huge difference to whatever proceeds you finally realize after your hard work has finished. Often, house flippers will look for motivated sellers, distressed properties, and perhaps auctions or foreclosures.
Foreclosures
One of the many tips for finding foreclosures across the states is to have cash on hand. Have your financing in place, or you may stand to miss properties such as these.
Motivated Sellers
In regards to motivated sellers, this refers to those homeowners who need to sell quickly. These are the ones who value speed over money, so you can purchase their properties at below-market value.
Distressed Properties
This term is used when a home needs significant repairs and renovations. These properties typically will not sell well through a real estate broker, so the owners will look for cash buyers.
These are the perfect houses for flipping. They can be bought cheaply and then improved for selling at a significantly higher price.
Bonus Tip
One bonus tip is to have a selling strategy in place. Many first-timers can get carried away with the excitement of improving a property and getting involved with such a satisfying project. When this happens, it can be easy to forget to put a plan in place of how you will sell the property once it is ready.
Consider your selling options, the time each channel may take to find a buyer, and the costs involved with each method. You should have an idea of how you will sell your home before you have even bought it.
Summary
Financing, budgeting, timelines, and property selection are all vital before you can consider how much profit you might make.
Getting the right people to help and work with you is also crucial. A reliable experienced team to handle electrics and construction makes all the difference to the amount of time spent on your project. The quicker you complete the fixing and flipping, the quicker you will see proceeds and be able to start your next project. If it goes well, you may soon be leaving your regular job to become a full-time house flipper.
