The Nuts And Bolts of Flipping Houses: How To Be Successful
By Paul Esajian on February 12, 2016What does it take to be successful at flipping houses?
Flipping houses has become fashionable – thanks to reality TV – a new period of growth in the US real estate market, and a new line up of celebrities renovating and reselling high-end luxury homes. It can be fun and profitable. For many, including stock brokers, fund managers, A-List actors, doctors, and new college grads, it is becoming absolutely essential for long term financial success. That doesn’t mean it is without any challenges. The question is; what does it take to get in and win?
House Flipping 101
The concept of flipping houses is pretty straightforward. It’s all about buying real estate, turning it around, and selling for a higher price. Buy low, sell for more.
Some do this via wholesaling; meaning they add value by sourcing discounted properties and providing them to rehabbers, landlords, and home buyers. Others fix up and flip houses. And some go a step further; placing tenants in properties, and reselling them as turnkey rental homes.
The Appeal of Flipping Houses
The biggest draw to flipping houses is, most obviously, the money. Data from RealtyTrac has shown that the average profit on flipping a house can be as high as 100,000 dollars per home in California property markets including San Diego, Los Angeles, and San Jose. For the mid-range markets, between 750k and 1M, Berkshire Hathaway reports an average profit margin of 41 percent. At the top of the market, it is relatively common to see millions being made on resales.
For others, the time and scheduling freedom is even more important than the big bucks. Some spend a few hours a month flipping houses, others make it a full time gig. More significant than the number of hours is being able to take off on the holidays, bend your schedule around spending quality time with family, and really being able to work from wherever you are happiest. This is absolutely priceless.
The Challenges & Risks of Flipping Houses
Flipping houses can seem extremely simple on the surface. The basic mechanics may be straightforward. However, there are plenty of new – and even very experienced – investors that have bankrupted themselves very quickly.
The two main risks facing every real estate investor are:
1. Buying dud properties they can’t resell
2. Running out of money due to miscalculating expenses
Other risks come from investors failing to know the numbers, understand property values and market properties, or simply neglecting to do their homework.
The 6 Keys to Successfully Flip Houses
1. Learn
You don’t need a degree in real estate, but if you want to flip houses profitably, you need to invest some time in learning your market and best practices. It is critical to get familiar with the real estate transaction process, financing options, and what makes a good or nightmare deal.
2. Knowing How to Run Your Numbers
Know your local property values, budgeting for rehabs, and what makes properties worth more money, or not.
3. Great Property Sources
Nothing else really matters unless investors have good channels for sourcing properties at the right prices. Develop good connections, negotiate well, and never neglect to complete your due diligence and you’ll do just fine.
4. Know Your Exit in Advance
Having a waiting list of buyers eagerly looking for properties can be a far surer way of guaranteeing a profitable deal, even before you buy.
5. Plan for the Best, Prepare for the Worst
Even the best laid out plans can hit snags. There are factors which are simply beyond the control of investors. The weather is one of them. Expect the best, but be prepared for the worst, and you’ll be fine. Have insurance, build up some reserves for when you run over expenses or people don’t pay you.
6. Build a Great Team
While investing in real estate doesn’t require having an office or in-house staff, it takes many people and companies time complete every flip. There are lenders, title experts, attorneys, insurance agents, marketers, and contractors. Build a great team, empower them, treat them well, and build real relationships with them, and you’ll come out on top.
Summary
Flipping houses can be fun, profitable, and highly rewarding when it comes to freeing up your time. Yet, it is foolish to ignore the challenges and risks that investors can run into if they are not prepared. Master these six areas and you’ll kick that risk to the curb, and be flipping houses like a pro.