Ideal real estate market conditions and popular HGTV shows like "Flip or Flop" have inspired hoards of people to dive headfirst into the house-flipping game.
A recent report by real estate insights curator Attom found that house-flipping increased 26% from 2020 to 2021 in the United States, equal to 323,465 single-family and condo renovations. Flippers also gained an average $67,000 gross profit in the second quarter of 2021.
Of course, house-flipping is not a simple undertaking, as many beginner house-flippers find that projects ramp up higher costs, time, effort and setbacks than initially perceived.
Nevertheless, when investing wisely, you can turn house-flipping into a lucrative business with a high return on investment (ROI). If you're interested in flipping houses, this guide will walk you through how to get started.
Setting a Budget
The first step of house-flipping is setting a budget and sticking as closely to it as possible. Staying within budget will help you pocket more money when it comes time to sell the house.
Acquiring the necessary funds will also help you avoid using personal savings to fund various aspects of your project or make up for any differences.
Analyze other home listings within your area to determine which upgrades will result in considerable earnings.
First-time flippers with little savings can still flip houses by taking advantage of Federal Housing Administration (FHA) loans. Buyers can put just 3.5% down for an FHA loan or seek a partnership with an investor to finance the home purchase and renovation.
Buying a House to Flip
House-flipping television shows make buying houses look like the easiest step. However, your purchase could determine whether you profit from your flip. Some tips for searching for the perfect home include the following:
- Looking for an inexpensive house in an expensive neighborhood
- Buying a house in an excellent school district
- Selecting homes that only need cosmetic upgrades
- Searching for homes with terrible curb appeal, kitchens and layouts
A dilapidated home might scare buyers away — but an experienced house-flipper will know how to showcase a home's potential.
Creating a House-Flipping Team
Unless you've tackled major renovations and repairs before, it's best to leave the heavy lifting to a house-flipping team of professionals.
Build a network of contractors and tradespeople for demo and construction, electric, plumbing, floor and cabinet installations and other necessary work.
Search reviews online, check references and licensure, compare their quotes to other contractors and ensure they can meet your budget and timeline.
Working Out the Details
As soon as you secure a house, the flipping process must begin. Project management is crucial for getting the project done in rapid turnaround.
The home's inspection should have already given you insight into what projects need tackling first. A well-thought-out plan will help execute your project with as few setbacks and structural surprises as possible.
Sourcing Materials and Finishes
You can stand to earn a higher profit by sourcing materials yourself. Cut coupons, search for online deals and compare prices to cut costs on construction materials, finishes and furniture.
Credit card rewards from building supply and home furnishing stores might also be a practical way to reduce spending and save money for other parts of your flip.
Additionally, while premium finishes appeal to buyers, carefully selecting which quality products will boost your profit is critical to saving money on unnecessary items.
Setting a Timeline
Setting a project timeline will help you stay on track to completion. Remember that not every project will demand equal time and effort. Meanwhile, your flip's location also matters.
A report found that flipping renovations take about 220 days to complete in Mississippi with a 4.3% ROI — in Hawaii, projects take about 198 days at a 27.7% ROI. Those who borrow money might find themselves paying interest the longer a project drags.
Consult with your contractors and stay ahead of supply shipments and installations, adjusting the timeline as needed.
Of course, situations might arise that set the project deadline back significantly, so it's critical to allot a buffer to account for the unexpected and keep stress at a minimum.
Selling a Flipped House
The final step of house-flipping demands research and collaboration with an experienced realtor to make a high ROI on your flip.
Expert recommendations for improving curb appeal and presenting the home to potential buyers go a long way in making a profit.
For instance, the National Association of Realtors (NAR) says that three-quarters of sellers see an ROI of 5% to 15% more than the asking price after investing only 1% into staging the home.
Pocket Your Profit and Flip Again
After a successful flip, renovators might want to begin the house-flipping process again. With each project, house flippers will improve their skills and see their profits rise.