A Guide to Flipping Houses for Profit – Everything You Need to Know
Whether you watch house-flipping shows and want to try it yourself or are focused on making money, flipping houses can be a profitable endeavor. With the right knowledge and preparation, you can become a successful real estate investor.
To get started, you should understand the real estate market. Though television shows make it look simple, they’re only portraying a small piece of the puzzle. There’s a lot of work involved in flipping houses.
The more prepared you are for the flip, the more likely you should profit. Start with a strong foundation, build your real estate knowledge, and run the math to make sure it’s a profitable investment. Carefully analyze repair costs and risk levels.
Definition of Flipping Houses for Profit
Flipping a house means you buy the property (often in bad condition), make repairs and renovate the home to increase its value, and sell it for a profit. It’s become highly popular for many, and with the right funding and skills, you can learn how to flip a house, too.
How to Flip a House
To flip a house successfully, you have to do more than just buying and selling it. The goal here is to find bargains, but you should understand renovation and repair costs. With that, you must focus on how long it takes to sell it after acquiring it.
Here are the steps:
Step 1 – Research the Market
First, you have to know the market. You can’t find a good deal without understanding the area. Learn about where people want to live and research popular trends.
Partner with a real estate agent to find a house. They understand the market conditions better, can figure out repair needs, and help you with everything.
Many professional flippers are licensed real estate agents, too. If this is a full-time dream job goal of yours, know your real estate!
It’s important to understand the class ranking system of real estate investors, going from A to D. Class A options are top of the line and have higher prices. Typically, you should start in the B or C class range because they’re affordable, move quickly, and don’t have significant problems like the Class D versions.
Finding out outside factors, such as getting a big investment or having a growing university nearby, can ensure that you get a good deal and make a better profit.
Step 2 – Financing
Before you consider purchasing a house, you need the money to acquire it and fix it up. Try to buy in cash to save you from adding interest and debt before selling.
If you can’t do that, consider loans. There are a few options out there, such as:
- HELOC (Home Equity Line of Credit) – This loan uses your home’s equity as collateral. It’s risky because if you can’t pay it back, you lose your house.
- Cash-Out Refinance – This is an option if the primary home recently increased in value. You take equity from your home’s current mortgage and refinance with what you still owe.
Most people find those options too risky. Instead, you can go with a hard money loan. This short-term loan is issued by private lenders and ranges from 6 months up to 1 year. They do have high-interest rates and might require a down payment of up to 40 percent.
While you should do the math and make sure it’s advantageous, the goal is to use the hard money loan to buy and fix up the property. Since you’re flipping houses for profit, you’re going to make a return on investment, pay off the loan when the home sells, and do it all over again!
Those interested in a hard-money loan can contact GoKapital. We have options to fit your needs!
Step 3 – Be Smart about Investments
Before buying the house, know what you’re getting. Understand what repairs are necessary and what you may do to improve the home.
You can also network with your real estate agent to find reliable inspectors and contractors. Some people are good with their hands and can upgrade the home themselves.
Along with repair budgets, you should focus on how much time it takes, and this becomes even more important when taking out a loan. Each day that you can’t sell the home, you pay more in taxes, insurance, and interest.
Step 4 – Buy the House
Learning how to flip a house means figuring out all of the logistics and then buying the home. Once you’ve secured financing through GoKapital, researched the market, and feel that it’s a good investment, make an offer.
Make sure the numbers are worked out and allow for wiggle room. When you find the right property at a good price, it’s time to pounce. Put money down on places you believe in. Remember, you have to close on the home before working on it, and you can’t do that until the offer is accepted.
Closing can happen fast, depending on who you work with, but it can take months. The clock starts ticking the moment you get the loan, so make sure contractors are ready to begin work immediately when the house closes. The quicker you finish the job, the sooner you can be flipping houses for profit!
Step 5 – Sell for a Profit
This is the ultimate reason for flipping because there was an opportunity to profit. Once renovations and repairs are finished, sell the house and reap the benefits.
Price the home competitively, and hire a real estate agent who knows what they’re doing. Though you probably paid for everything out of the loan, you must repay that and want to make some money for yourself.
There are various factors involved, such as the timing of the house going up for sale, the area you work with, and much more.
Costs Associated with Flipping Houses for Profit
Having a guide to flipping houses for profit couldn’t be complete without a breakdown of the costs, though it does vary based on the house and different factors.
If a low-priced home in a good neighborhood needs much work, there could be a slim profit margin. However, if you see a bargain in an up-and-coming community that doesn’t require a lot of work, the market might not be hot right now, and you’re sitting on a property too long.
You’ve got to estimate for various factors. The 70 percent rule can help here:
- Estimate ARV (After Repair Value)
- Estimate necessary repair cost
- Take 70 percent of your ARV and subtract repair Costs
- Use the result to find out what to pay for the house
Flipping houses for profit isn’t what it looks like on television, but it can still be a good investment. You should avoid these common mistakes: not enough capital, not enough time, not enough skills and not enough patience.
Learning how to flip a house means focusing on funding, understanding the market, and estimating costs efficiently. If you’re interested in this endeavor, please contact GoKapital for a hard money loan today!