You’ve seen the television shows where a couple buys a house in complete deterioration. They do some work, put their decorating touch on the place, and sell it for a profit. Flipping houses is one way to increase your cash flow, but you have to know what you’re doing or risk losing thousands of dollars.
Although profits for home flipping in the United States decreased slightly last year, the median profit on a flip was still $65,000. How much you make depends on your local market, initial investment, and comparable homes in the area.
You should follow some specific steps to make a profit on buying, fixing up, and reselling. Here’s how to flip a house.
1. Know Local Inventory
Make friends with a local real estate agent or study the market on your own. Figure out the average length of time it takes to move a listing. The national average is around four months, meaning all the houses on the market would sell in that time. The lower the number, the faster you’re likely to sell a home.
The rates vary by area and demand, so pay attention to how long homes similar to the one you’re flipping stay on the market and if they get close to asking price.
2. Have Great Credit
You need loans to buy a house, renovate it, and flip it. If your credit is even slightly iffy, now is the time to improve your credit score to qualify for loans. While you could potentially find investors to back you in your venture, you will typically still put up at least some of the money and take on some of the risk.
3. Look for Great Deals
The best way to turn a profit on a flip is by getting the lowest rate possible. Know what houses sell for in the area and look for auctions or for sale by owner. The last thing you want is to get into a bidding war with someone already paying a premium fee to a real estate agent. The lower you buy and the higher you sell, the more profit you’ll make.
4. Gather a Team
While you can likely do a lot of the renovation work on your own, you will need professionals to handle foundation, electrical, and plumbing issues. Have a team of people you can rely on. You’ll make more money if you finish your renovations quickly, so having someone on call who can get there fast keeps work moving.
5. Avoid Trends
Everyone on television may be painting walls blue, but you’re much better off going with traditional colors, fixtures, and flooring. You don’t want something that will go out of style before you even go to market. Look for things standing the test of time. Balance quality and cost. You don’t want to spend thousands more to get a particular type of wood, but you don’t want to go too cheap and turn off house hunters, either.
6. Get a Real Estate License
It could be worth the work of getting a real estate license. You can then list your house and more easily pull comps for the neighborhood. Experience in the market helps you understand what people want in a new home. You won’t have to pay fees to a company to sell your house for you.
Is House Flipping Right for You?
House flipping can be high-risk. If you buy in the wrong neighborhood or install undesirable updates, you could be stuck with a home for months. For many amateur flippers, you have to sell one property before you can invest in another, so lengthy vacancies mean a lack of funding and lower income.
However, learning how to flip a house can also help you turn a profit. You might even want to live in a home while you renovate, making it your primary residence and gaining tax advantages. Sell the home after a few years and roll the equity into another fixer-upper, until you fully pay off the house of your dreams.