6 Practical Steps to Make Money Flipping a House

Real estate has never been a bad investment despite a world crisis. Even if the property value shoots down for a while, you still hold the ownership of the asset. You can wait until the prices start to soar again, and then sell the property. But some real estate investment is time-bound. You have to sell the property as soon as you can. One investment strategy when it comes to real estate is known as flipping.

House flipping, also called wholesale real estate investment, is a strategy where some business-minded people in the industry earn a lot. To know more about how flipping a house generates income, read on!

What is House Flipping?

House flipping is a type of real estate investment where a person purchases a property intending to sell it after renovation and repair. The house will not be used by the buyer. Instead, it will be renovated and upgraded to suit the current market. Once the improvements are done, the buyer will become the seller as he tries to sell the house for a higher price range.

House flipping is a great money-maker if you know how to do it properly. There are many risks in house flipping too. So, you must understand how the industry works before you engage with it. The general rule that most house flippers follow is not to purchase a house that is 70% more than its value after all repairs and renovations have been made.

Sample Computation:

$200,000 = ARV (After-Repair Value) 

$  45,000 = Repair/Renovation Costs

$200,000 x 70% = $140,000 - $45,000 = $95,000

The above computation shows that after all estimated calculations, the investor should only spend $95,000 or less to buy a house. Spending more than $95,000 is a major risk, which might result in loss. It is vital to calculate your earning potential first before taking a step further. This will make you feel more secure whenever you do any house flipping arrangements.

Step-By-Step Guide to Make Money Flipping a House

There is no easy way when it comes to doing business. All have their risks. But, wise investors know how to reduce, or even prevent, these risks. It is also the same for house flipping. So, before you start with this business venture, read this step-by-step guide on how to maximize your earning.

1. Do Your Research

In every business, research is important. Simple research can either make or break the entire business. You can build a strong brand with enough knowledge of the industry as well as the market. When it comes to house flipping, you have to know the real estate trends, what neighbourhood do people want to live in, and the market value of the properties within a neighbourhood.

You must also have an idea of the estimated costs of renovations and upgrades. You also need to check for contractors and real estate agents that you want to partner with. If you do not have the money to start this business, then you also need to do some research on financing options. Gathering all this information will allow a more convenient process as you flip a house.

2. Make a Concrete Plan 

After conducting research, you can now tailor a plan that is suitable to your vision. Here, you need to put your research into words and figures. You have to think about the project duration from start to finish. House flipping normally involves a limited time frame. You have to buy, renovate and sell the house as quickly as possible. This is to ensure that you do not spend too much on the house. The longer that it is in your possession, the more you are paying for its utilities, taxes, and insurance.

Another thing to include in the plan is your budget limit. How much are you willing to spend on a house and its renovation cost? You also need to determine where you will get your capital for the entire project because real estate investments can be very expensive.

3. Secure the Capital

The acquisition cost of a property is not a joke. It will cost you several tens, or even hundreds, of thousand dollars. You may use your own money if you have enough to spend. Or you may also consider other financing options from banks or lending companies. However, when you loan your capital, you have to keep in mind that you will be paying for interest. Thus, you need to add the interest amount to your total expenses too. Make sure that you can still profit from the sale despite the expenses you have to incur.

4. Find the Right House

Start looking for the right house as soon as you have the capital. You need to secure the house at the soonest possible time to reduce the length of the whole venture. This is especially true when you only loaned the money you used to buy the property. You want to find a house at the soonest possible time so that you can sell it the soonest too. This way, you won’t have to pay for interest rates longer.

Looking for the right house is the most crucial step. After all, no house flippers would want to spend tons of money for a run-down house that will cost too much for repair. You can make use of real estate agents in this step. Connect with them and ask for their honest advice on properties. It will also help if you know the house’s physical health. You can hire a company to do a thorough check of the house including its history and community information. It can give you a rough estimate of the potentials and risks of the property you are buying.

5. Improve and Make Upgrades on the Property

Renovations should start as soon as you get all the necessary permits needed. The improvements and upgrades you do on the property should also be included in the “new trend.” For example, the trend nowadays is neutral-painted walls instead of bold-colored ones. Also, an energy-friendly home is a great deal. There are several ways to increase a house’s value with renovations and upgrades. So, make sure that you apply them to maximize the selling price.

6. Market the Property and Sell

People are always looking for investment properties all the time. You will never run out of potential buyers. The problem, however, lies in how marketable the house is, and how fast you can sell it. Remember, the entire house flipping process should be kept to a minimal time to reduce unnecessary expenses. Enlist a reputable real estate company to increase your chances of selling the property as soon as possible. Also, you can do advertising on various online websites to reach a wider market.