It’s easy to see why reality shows about people who flip houses have become so popular.
There’s something enticing in watching someone transform a property and rake in tens of thousands of dollars, all in the space of 45 minutes (plus commercials).
But there’s a big difference between reality TV and, well, reality. Property flipping involves a lot more work, and a lot more risk, than what you might see on HGTV.
That’s not to say you can’t succeed in transforming old homes into lucrative investment properties. Read on to learn more about how to flip a house.
1. How to flip a house – Know the market
Start by doing your research. Ask yourself how much cash you have to work with and which markets that will allow you to access.
The less money you have on hand, the lower the price of homes you’ll be able to invest in. Although you’ll likely be able to get investor financing to cover a bulk of the purchase, there’s a significant difference between making a down payment on an $80,000 home and an $800,000 home.
Work with local real estate agents to find the right investment properties in the right neighborhoods for the right price.
2. How to flip a house – Create your business plan
The investors you’re courting to help with your flip will want to see a business plan that includes the budget, a schedule and the scope of the project.
It’s important to know your budget before you begin and then stick to it, making sure the renovations you undertake actually increase the value of your home.
If you’re new to flipping, it’s a smart idea to start with a smaller scope: a house that maybe needs some new flooring or paint, but no mechanical or structural problems. It’s a good way to ensure your project moves quicker and costs you less.
3. How to flip a house – Build a network of contractors
Before you buy your first property, you’ll want to begin crafting a network of contractors: electricians, plumbers, roofers, painters, HVAC companies, along with general contractors and even a few handymen. Unless you plan to do all this work on your own, you’ll need this network.
4. How to flip a house – Find and buy your house
There are several different strategies for finding houses to flip. You could work with Realtors in your network, mount a direct mail campaign, or find a wholesaler who needs your help.
Just know that you’ll need to be patient. You might have to tour a lot of properties and make a lot of offers before you find the right house.
Once you’ve found a property that works for you, consider working with a home inspector to make sure the house doesn’t have any of the structural/mechanical issues we mentioned earlier.
You should also know the after repair value (ARV) of your home. This is not the value of the property upon purchase, but the estimated value after you’ve done renovations.
This figure is important because it lets you determine sale price, your renovation budget and the profitability of your project.
5. How to flip a house – Renovations
Once the property is yours, don’t delay. The more time that passes, the more money you’ll have to shell out for things like taxes, utilities and insurance. The faster you can complete your project, the faster you can sell the home, pay off your lenders and recoup a profit.
That’s why the third step on our list – finding contractors – is so important. Building a network of reliable contractors will ensure your renovations happen on schedule while still being up to code.
It’s important to remember the costs associated with buying, holding and selling a home.
In addition to the actual price of the home, you’ll need to consider closing costs, which can include things like appraisal fees, title insurance and recording fees.
You’ll also need to consider holding costs – also known as “carrying costs” – which include mortgage payments, property taxes, insurance and maintenance fees.
Finally, there are the costs that come with selling the property. These can include real estate agent commissions, transfer taxes and staging costs.
Property flipping isn’t something you can do on your own. You need a support system that includes investors, contractors, Realtors, and home inspectors.
If you aren’t sure how to build that network, DIG can help. We are the Diversified Real Estate Investor Group, an organization made up of professionals from every level of the real estate world.
Stop by our next meeting, scheduled for January 31, to start building the toolkit you’ll need to flip your first house.