Many real estate investors have realized how lucrative it can be to flip houses – buy an undervalued house, fix it, and re-sell it for a profit. However, flipping houses isn’t as easy as it looks on TV, and the profits aren’t always as high as you’d expect them to be. It’s a risky business and, if you don’t know what you’re doing, you could end up losing your investment. So yes, it’s possible to make a lot of money with this real estate investment strategy, but the question remains: How to make money flipping houses? Keep reading the best tips we gathered from experts to help you achieve maximum profits.
How to Make Money Flipping Houses – Find the Right Neighborhood
The most important tip for a successful fix-and-flip is acquiring knowledge on the real estate market you’re working in. You can fix a home all you want, but it’s impossible to fix up a neighborhood on your own. Keep that in mind when evaluating the neighborhood you want to buy an investment property in. Don’t get tempted to buy in low-income neighborhoods because properties are cheaper. These neighborhoods have high crime rates and a larger number of foreclosures, which will bring down your property’s value and give you a harder time re-selling.
Instead, expert home flippers advise investing in nice neighborhoods that are on their way up. Look for areas showing indicators that the market is thriving like rising real estate sales and employment growth. Moreover, search for safe neighborhoods with low crime rate, near school directs, and where new construction is planned. These factors suggest that home values are on the rise. To find such locations, start by knowing how much homes are selling for and the types of homes being sold. This will help you identify real estate deals that have the potential to be flipped for profits.
The next thing you need to know is how quickly homes are selling by calculating the “months of supply.” This number tells you if you’re in a seller’s market or a buyer’s market. Basically, you want to ensure that you’re buying an investment property in a seller’s market (months of supply is lower than 6). This assures that the flipped home won’t stay on the market for a long time (discussed in details below).
How to Make Money Flipping Houses – Pick the Right Property
Once you have identified the neighborhood where you want to buy an investment property, you’ll have to select the house you want to flip. There are numerous ways for property investors to find properties for sale, including referrals, driving through the neighborhood, the MLS, and advertisings, which are all great ways to find potential fix-and-flips.
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How to Make Money Flipping Houses – Calculate the Potential ARV
Once you find a real estate property for sale that looks like it may have the potential for making money as a fix-and-flip, the next tip is to calculate the after renovation value (ARV). The goal of flipping houses, after all, is to make profits when selling them. Thus, property investors need to do this step to assure that the investment property will actually gain value after renovating it and sell for a higher price than the purchase price plus renovation costs, carrying costs, contractor costs, and other fees.
Bonus Tip: Don’t forget to get a professional home inspection. Once you dig a little deeper, you might find additional repairs that the property might need which you need to account for in order to know how to make money flipping houses.
In order to determine the ARV of an investment property, you’ll need to find recently sold homes that are similar in size and condition to your home after completing the planned renovations. Successful house flippers also use the 70% rule: simply take the ARV and multiply it by 70%, then take out your renovation costs. The final number should be the maximum purchase price for your investment property to make profits.
You can use Mashvisor to find recently sold properties in your area. After signing up, you can use our platform to download an excel sheet report containing comps and recent sales in your real estate market of choice! To learn more, read this “How to Easily Find Real Estate Comps.”
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
How to Make Money Flipping Houses – The Best Financing Options
A beginner real estate investor might find it challenging to figure out the right way to pay for buying a fix-and-flip, especially since most conventional mortgage lenders don’t finance houses in distressed or poor conditions. Nonetheless, the best options for financing flipping houses for beginner investors are hard money and private money loans.
Hard money lenders are simply small groups of property investors who lend money to house flippers. The reason many prefer hard money lenders is because they mostly care more about the after renovation value of the investment property than the financial qualifications of the borrower. Private money lenders, on the other hand, are smaller groups of investors and can sometimes be only one individual. These are preferable because they usually have lower interest rates, are more flexible, and cheaper.
There are, of course, other options available to finance a fix-and-flip. Make sure to select the financing option that best suits you and the investment property you’re working on flipping.
How to Make Money Flipping Houses – Build Your Dream Team
What distinguishes successful house flippers (and property investors in general) from others is that they have a strong investment network and a team of professionals to work with. One tip we have for you is to build your real estate team early. The most important people you NEED to include in your network are:
- The Contractors: A plumber, electrician, skim coating contractor, and a skilled general contractor may all be needed depending on the size of the deal. It might be hard to find affordable contractors, but the most important thing is to find those who get the job done to your satisfaction
- The Home Inspector: As already mentioned, house flippers need to hire a trusted inspector to find out how much work is required before closing on an investment property. This is important when it comes to how to make money flipping houses.
- The Realtor: If you don’t have access to investment tools to search for investment properties on your own, then you’ll need to work with a real estate agent or realtor. A good realtor will know the real estate market, understand how real estate transactions work, and have MLS access to find cheap properties with the potential to make profits.
- Title Companies and Attorneys: Even though you may not need a title or escrow company or a lawyer right away, it is a good idea to include them in your network before you really need one.
How to Make Money Flipping Houses – Sell the House ASAP
Time is your enemy when it comes to selling a fix-and-flip. This is simply because the longer you have the home on the market, the more running costs you pay, which means a lower profit. So, in order to receive maximum profits, a real estate investor needs to sell the investment property as quickly as possible. If you’ve followed our previous tips on investing in the right neighborhood that is a growing seller’s market and investing in a desirable property, then you’ve done your part to avoid this risk.
Another way to assure not holding the flipped property for longer than what your budget allows is by working with a good real estate agent. He/she will put your investment property on the MLS for sale and market it to buyer clients and other realtors. In addition, a good agent will handle all marketing, showings, negotiations, and closing of the real estate transaction.
Now that you know how to make money flipping houses, it’s time to turn that dream into reality! Taking the above tips into account will assure you maximum profits when following this real estate investment strategy. To start with finding the right location to invest in, use Mashvisor’s data and analytics to estimate the potential profits you can make from investing in your real estate market of choice. To learn more about how we help property investors make faster and smarter real estate investment decisions, click here.
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