When it comes to real estate investment strategies, there are several options to choose from. This includes investing in rental property, real estate wholesaling, buy and hold, REITs, house hacking, BRRRR investing, and syndications. Another strategy that has become increasingly common with property investors is fix and flip. While some people think they can turn to reality TV shows like Flip or Flop, Masters of Flip, Flipping Out, Vintage Flip, and Flip This House to learn how to flip houses, there’s more to it. That’s why we’ve put together this guide for beginner real estate investors.
So, What Exactly Is House Flipping?
The fix and flip real estate investment strategy is often confused with wholesaling. The difference is that wholesalers don’t make any improvements to the property before flipping contracts to real estate investors.
How to Flip Houses in 8 Steps
Thinking of becoming a house flipper? Here are the steps along with some tips on how to flip houses for beginners:
1. Work on your credit
To venture into the house flipping business, you might need a loan to buy the investment property and pay for all the necessary renovations. Banks and other institutions have very strict lending standards, especially if you want to borrow money for a house flip. If your credit score is poor, the chances of getting your application approved are very slim.
The first thing you need to do is to check your credit score. If you have poor credit, start working on improving it immediately. Keep your card balances low, reduce your debts, and pay your bills on time. Be sure to check your progress every month. With a high credit score, you will be able to get a better interest rate from your lender. This will save you lots of money when you begin house flipping.
2. Save up lots of money
Financing a flip can be very expensive. Besides the cost of buying the house and renovating it, you should also be ready for other expenses such as:
- Lender closing fees
- Appraisal costs
- Insurance costs
- Home inspection fees
- Title company fees
- Homeowners’ association fees
- Property taxes
- Utility bills
- Accounting and bookkeeping fees
- Advertising and marketing costs
- Inspections, permits, and other fees levied by the local authority
Therefore, to be successful, you must have a lot of cash on hand. Since lender financing usually doesn’t cover the costs above, you should be ready to pay out of your own pocket. You should also be aware that home renovations could cost more than budgeted for.
You can build cash reserves by having an automatic savings plan where you save money every month. In addition, think of ways to make a little extra cash on the side and use the earnings to boost your cash reserves. To avoid the initial costs, consider working with lenders that offer loans that allow you to start flipping houses with no money.
3. Choose a great location
Choosing a great location is a major part of learning how to flip houses. Though you can make all kinds of improvements to a house, it is almost impossible to change a neighborhood. This is why you need to conduct extensive research before deciding where to invest.
Mashvisor’s neighborhood analysis can come in very handy for finding a great location. With the neighborhood data provided, you’ll get access to real estate comps for neighborhoods. You’ll also get the average cap rate, cash on cash return, rental income, walk score, price, and the number of properties (for sale, Airbnb, and long-term rental properties). Check out this neighborhood analysis of a popular Chicago neighborhood.
Neighborhood research should also involve checking neighborhood amenities, crime rates, public transport, availability of schools, homeowner association fees, and future plans for the area. Besides doing your own research, consider working with an experienced local real estate agent.
4. Find the best real estate deals
After identifying a suitable location, the next step is finding a house to flip. Here are some of the places where you can find property for sale:
- The Mashvisor Property Marketplace – This is an advanced tool that gives you access to great off-market deals with the click of a button. You can narrow down your search using filters such as type of property, budget, and miles from the city of your choice. You also have the choice to set a filter that will reveal investment properties that specifically need repairs. The types of properties available include short sale, bank owned, auction, and foreclosed homes for sale.
- Public records – Courthouse records, government websites, and local newspapers are great places to find houses to flip. You will find information on short sales, pre-foreclosures, and more.
- MLS – A multiple listing service is a database of properties that is designed to connect home buyers and sellers. You will have to work with an accredited real estate agent to access homes listed on the MLS.
- Networking – When it comes to spotting fix and flip deals, networking can come in very handy. Real estate professionals like agents, property managers, builders, and contractors can be valuable sources of information.
5. Calculate the after repair value (ARV)
ARV in real estate refers to the potential selling price of the investment property after all the renovations are done. You can find the ARV using real estate comps. (Mashvisor is a great way to find real estate comps quickly!) Once you’ve calculated the ARV, subtract the purchase price, your monthly carrying costs, and the cost of repairs. What is left will be your profit. According to the 70% rule in house flipping, the price real estate investors pay should not exceed 70% of the ARV minus repair costs.
Learn More: What Is the 70% Rule in Real Estate?
Do you have questions about Mashvisor? Read our FAQs and learn about our tools.
6. Make an offer
Before making an offer on a house, decide the highest price you are willing to pay. Remember to include your estimate for taxes, interest, and repairs. If the property owner demands a higher price, walk away and look elsewhere.
7. Fix up the investment property
If you have the necessary skills, you could consider doing some of the fixing up yourself. This can end up saving you a lot of money. For the work you cannot handle by yourself, be sure to hire an experienced contractor. To ensure that the repairs are being done properly and on budget, be sure to supervise the work closely.
8. Relist and sell
You could decide to sell your house yourself by listing on Craigslist, real estate sites like Mashvisor, or even your website. While this will save you realtor fees, it might take a long time before you find a buyer. It would, therefore, be wiser to work with a real estate agent that has some experience in how to flip houses.
House flipping is not as easy as it looks on TV. It can be a very risky venture, especially for beginner real estate investors. However, anyone can learn how to flip houses and make a good return on investment.