✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home sellers.
Shows like Flip or Flop and Masters of Flip have glamorized house flipping across America. However, the reality of house flipping can be much different than what these shows portray on screen.
To give you a glimpse, 1 in 13 homes were flipped in Q2 2023. Investors made a $66,500 profit on each home they flipped. And the average resale price for flipped homes was $308,500. Moreover, people who listed their homes on MLS saved thousands of dollars in realtor commissions.
With Houzeo’s MLS listing, you can market your flip to potential buyers on the MLS. You also get an online dashboard to manage your listing, showings and offers.
What Does Flipping Houses Mean?
House flipping is an investment strategy where you purchase a low-cost property, renovate it, and sell it for a profit. It is up to you to decide whether you want to make minor touch-ups or major repairs to the house.
Successful home flippers have two things in common:
- Buy Properties at a Discount: Most home flippers go for distressed properties such as probate homes and foreclosures. You will find these homes for sale at a lower cost than the local market value.
- Save on Commissions When Selling: House flippers list on MLS for a small flat fee and save thousands of dollars in realtor commissions.
How to Flip a House in 5 Steps
We have invested thousands of hours working with home flippers. Here’s how you can start flipping houses in 5 steps:
1. Buy an Investment Property to Flip
Buy a house to repair and sell. If you purchase an inexpensive house in a bad locality, you may suffer a loss. But a house in a desirable location or neighborhood will maximize your flipping profits.
Look for investment properties that are accessible to you, or find homes listed on the MLS in your area. You can also try online marketplaces like HouseCashin and Roofstock, which specifically sell investment properties.
2. Stick to the Home Flipper’s 70% Rule
The 70% rule suggests you should not purchase a house for more than 70% of a home’s after-repair value (ARV). Also, you must deduct the renovation costs from the final amount.
ARV is the worth of the home after you’ve completed the renovation.
-
✍️ The Home Flipper’s 70% Rule
70% Rule Formula: Your Purchase Price = After Repair Value x 0.70 – Rehab Costs
For e.g., let’s assume the rehab cost estimate is $30,000. So, how much should you pay for a home that you expect to sell for $500,000?
Your Purchase Price = $500,000 x 0.70 – $30,000 = $320,000
3. Choose the Best Location
A good location can boost the sale price of your renovated home. However, a neighborhood with a high crime rate will discourage buyers.
Look for houses to flip in a neighborhood close to grocery stores, hospitals, schools, etc. Also, make sure the house is within the proximity of your residence. That way, you’ll be able to oversee the progress of your flip.
4. Inspect Before Purchase
Neglecting a home inspection can lead to costly hidden problems and renovations. A whopping 86% of buyers found at least one issue during a home inspection.
Avoid doing DIY home inspections. Seek the services of a certified home inspector. They can help you identify issues with the foundation, electrical systems, plumbing, roofing, HVAC, etc.
Based on the home inspection report, get a new repair estimate and consider that cost in your flipping budget. Should the estimates exceed your planned budget, negotiate the sale price with the seller or find another home to flip.
» Find out How Much Does a Home Inspection Costs.
5. Invest in High-Quality Renovation
Basic repairs may not fetch you a good sale price. But well-executed renovations will increase the chances of selling your house for a higher price.
Hire professional contractors to improve the curb appeal of the house. You can choose to upgrade the bathrooms, remodel the kitchen, and refurnish the flooring to make the house more appealing.
Pros and Cons of Flipping Houses
✅ Pros of Flipping Houses
- You Earn Significant Profits: In 2023, investors made a 27.5% profit on the houses they flipped. For instance, if you invest $300,000 into a flip, you may earn up to $82,500 in profits.
- You Help Boost Home Sales: When you rehab a distressed property, you help improve the area. If you play your cards right, you may even help increase the home sale prices of the region.
- You Learn Real Estate Know-How: You get actual experience of the real estate market when flipping houses. You learn about budget allocation, property renovations, and more.
❌ Cons of Flipping Houses
- Your Flip Could Turn into a Money-Pit: Unidentified structural issues, water damage, and HVAC problems could significantly increase renovation costs.
- You Pay Pricey Labor Costs: The average labor costs are between $20 and $150. However, structural jobs, plumbing tasks & roofing repairs can go beyond $1000.
- You Cannot Escape the Holding Costs: The longer you hold the flip, the more expensive it will become. Property taxes, utilities, maintenance, and HOA can add up quickly. It will kill your profitability.
» Pros and Cons of Flipping Houses: Find out why the benefits of flipping out weight cons!
How Much Does It Cost to Flip a House?
The main cost of house flipping is acquiring the property. You also incur renovation costs, which can go up to $49,987. And because you want to get top dollar for your property, you cannot avoid necessary repairs.
Sweat equity is one way to maximize your profits if you do repair work yourself. However, if you hire plumbers or electricians, you will have to pay for their services.
Other expenses include:
- Holding Costs: Holding costs are expenses you pay for maintaining the property. These expenses include property taxes, property management & maintenance fees, HOA, and utility bills.
- Rehab Costs: These include labor & material expenses, home inspection costs, and necessary permit expenses.
- Marketing Costs: You will have to pay for marketing the house, listing it on the MLS, making flyers, and more.
- Home Selling Costs: Typically, closing costs are 5% to 8% of your sale price. They include realtor commissions, title fees, etc.
Can I Flip Houses With No Money?
Yes, you can flip houses with no money.
Some mortgage lenders provide loans for real estate investing. If you wish to fund your first flip without money, consider these options:
- Private Money Lenders: These lenders loan money to potential flippers at an interest rate of 8% to 10%. Companies like WeLendLLC have packages for first-time borrowers.
- Hard Money Lenders: These lenders provide hard money loans for a high interest of 7% – 15%. This loan is available for a short period. Most lenders prefer experienced flippers, but companies like Lima One Capital allow first-time flippers too.
How Long Does It Take to Flip a House?
The average time to flip a house is 178 days. Typically, it depends on the extent of renovations required, market conditions, and the type of property you’re flipping.
However, unforeseen instances could delay the selling process. For instance, if there are extensive amount of repairs, you may spend more time than expected on your flip.
But, you can sell your house quickly if you list it on MLS through Flat Fee MLS companies. Other advantages include:
- Your flip gets the maximum exposure.
- You save thousands on the seller’s agent commission by paying a small amount.
- You can negotiate the sale price to ensure you earn a profit.
- You could get a cash offer for your flip.
House Flipping Mistakes to Avoid
- Not Planning Thoroughly: If you are a first-time house flipper, then you may fail to anticipate risks. To avoid this, create a detailed plan that includes everything from a budget to the project timeline.
- Not Having Enough Money: Unexpected expenses are inevitable during the renovation process. So, ensure you have sufficient funds to cover these unforeseen costs.
- Not Inspecting the House Before Purchase: A distressed property with severe issues will burn a hole in your pocket. Professional evaluation before the purchase will help identify and address potential issues.
Is Flipping Houses Worth It?
Yes. 1 in 13 homes was flipped in the second quarter of 2023. The profit margin increased by nearly five percentage points from Q1 to Q2 of 2023. Moreover, raw profits on typical flips increased by 18% quarterly. This indicates that current market conditions make flipping a great investment opportunity.
In fact, flipping can be a profitable side hustle for passive income and valuable career skills. With proper preparation and a good strategy, you can learn how to flip a house without risks.
Why Houzeo is Great for Home Flippers?
House flippers save thousands when selling their flip with Houzeo. We allow you to list and sell your flip and manage it via. IntelliList Listing Management and a user-friendly dashboard.
Our tools help you monitor multiple flips at the same time. See how Houzeo works and why it is one of the best websites used by home flippers across America!
» Need More Clarity? Read these exclusive Houzeo reviews and learn why it is one of the best website For Sale By Owner in America.
Frequently Asked Questions
Is flipping houses profitable?
Yes. Home flipping is profitable. In fact, home flippers made a 27.5% profit in the second quarter of 2023. This indicates that house flipping is a worthwhile investment.
Is it hard to flip houses?
House flipping can be challenging. It takes time to find an ideal investment property, arrange funds, renovate the home, and find a potential buyer. But with experience, you learn to navigate the complex process and pull off a successful flip.
How to flip houses with no money?
You can flip houses with no money by getting an external funding. Apply for a private loan or hard money loan and get the funds to start flipping houses.
How much money do I need to start flipping houses?
Let's assume you plan to purchase a home worth $200,000, and renovation costs are $40,000. To cover the maximum expenses, you'll need a minimum of $250,000. Always make a budget to understand how much it will cost to flip a house.
