- Learn the Market
- Take Care of Financing
- Search for Property to Acquire
- Make the Necessary Repairs
- Start Looking to Sell
1. Learn the Market
The first step to flipping a house successfully is learning the market. Since you are not acquiring the property for personal living, you must be ready to research and know the market. This time around, what you look out for are not your preferences but what the market wants. Is the market currently "hot" or "cold," and where is it going in the future. A great way to get a feel for this is to speak with experts, especially real estate agents.
2. Take Care of Financing
To flip a house you'll also need money to acquire the property. Ideally, this should be from your pocket. However, if this is not possible, you should look out for alternative sources of financing, which will be discussed below. You can get a mortgage for the house to be flipped, but this is not common. Also, this can be risky as you have to start paying interest on the mortgage, even if you don't flip it quickly.
3. Search for Property to Acquire
After securing funding, it's time to start looking for houses to flip. There are numerous strategies for finding homes to flip, from looking for distressed properties to abandoned homes, which we'll discuss below. The main thing to keep in mind when buying a house to flip is that there's enough room for you to make money on the deal.
4. Make the Necessary Repairs
Once you've bought a property you intend to flip, it's time to fix it up and prepare it for the sale. Fixing and flipping is a great strategy so you will need to go about repairing and renovating the property. Also, you have to take care of other expenses such as insurance and additional fees.
5. Start Looking to Sell
The final step to flip a house is to sell it. After you acquire the property and renovate it, you should start looking for ways to get it sold. You can undertake online and offline marketing, work with real estate agents, amongst other sale channels.
You probably must have seen the representation by the media of house-flipping as an easy, ultra-profitable venture. This is not the entire picture. Discussed here are some of the tips and "truths" you should know about house flipping.
1. House flipping is not a get-rich-quick scheme
While you can sell houses at a healthy profit, the art of flipping houses does not necessarily lead to extraordinary wealth, at least not in a short period. You must be ready to exercise a lot of patience and see the process through. For instance, most of the houses you acquire might not get sold immediately. You must be ready to "sit" on them till you find a buyer. This is because the real estate industry goes "cold" from time to time.
2. You may need some funding
Mostly to run a house-flipping venture, you will most likely need some funding. Even if you acquire the property on mortgage, there are other expenses peculiar to house flipping. These expenses are required for you to get a seamless sale. They include:
- Renovation: This is by far the most common expense. For all houses you acquire for flipping, you will most likely need to improve them. This will require shelling out funds on renovations and rebranding. This is done in a bid to enhance their market value.
- Insurance: You may need to spend some funds on insuring the property against any unforeseen circumstances.
- Marketing: You can see any property to be sold as a product. Thus, you need marketing - in fact, a lot of it, especially if you are relatively new to house flipping. The reason for this is to get as many potential buyers as possible. You can market online (social media, ads, blogs) and offline (for instance, in magazines).
There are several ways to go about house flipping. There are a few tricks or strategies that have worked in the past and still have a lot of potentials.
1. Flipping Partially Completed Houses
One innovative way to go about flipping houses that can generate substantial returns is to focus your strategy on flipping houses under construction.
It happens that persons constructing houses may lose interest in continuing with the construction due to a diverse number of reasons and may be out to sell it. At this partially completed stage, such property usually costs much less than a fully completed one will. Thus, they typically represent great investments, primarily if they are located in the right locations. You can acquire these properties at a discount.
However, you should note that you will need some funds to spend on completing the property. This will depend on the phase the property was in when you bought it. If it is about to be completed, then you may not have to spend so much.
2. Flipping Abandoned Homes
This is quite similar to the uncompleted house flipping strategy. You might be surprised, but there are a lot of properties that are lying empty without occupants. For a wide variety of reasons, the owners may not be keen on putting the house to any good use. This is a fantastic opportunity.
Most of these abandoned houses come at really discounted prices to comparable homes.
However, we should note that when you find abandoned properties like this, they are usually in bad shape, with dilapidated facilities. This is frequently due to the long periods of lack of use. Thus, you should be ready to shell out some funds for renovations. This may not cost much since the house is a completed one.
Flipping abandoned homes can be very profitable. You will be surprised to find that there is usually a sizeable margin between the price of an abandoned house and a new-looking, freshly refurbished one.
3. Flipping Foreclosed Houses
Foreclosed properties offer another avenue to get healthy returns on house flipping.
While it is not desirable, many people default on their mortgage payments, and lenders have to seek legal means of seizing the property from them. After seizing such property, the lenders typically put them up for sale.
Usually, the lender's goal is to get the loan amount back, probably along with a small profit. Thus, the foreclosed houses are usually sold at a significant discount. Since house flipping aims to buy cheaply and sell at a high price, there is a lot of profit to be made here. Another interesting fact is that most foreclosed properties are usually in good shape, and thus you don't need to shell out funds for major renovations.
4. Distressed-sale Houses
This shares some attributes with the foreclosed property. Essentially, when houses are earmarked for distressed sale, it is usually the case that the owners wish to sell them quickly due to some pressing desire for funds. As a result, these homes are generally cheap as their owners are looking to sell them quickly; thus, their choices are comparatively limited.
You can look out for properties such as these, which can be purchased at a discount and sold at a healthy profit later. One good thing about such properties is that they are usually in good condition and thus do not need many improvements.
Can you flip houses without having any money? The answer is, "Yes." However, it is not entirely as straightforward as it seems. You may find it somewhat tricky if you are new to house flipping.
We have to note that to flip houses with no money, you may require some experience because you will essentially be making use of people's money. However, if you are convincing enough, then you should go for it.
1. Private Money Lenders
Just as the name suggests, private money lenders work outside the formal financial system we are used to. The term "private money lenders" can be a broad one; It includes any entity with some extra funds and the will to invest those funds. This can be a private individual, a group of individuals, or even an institution.
We can say that they are the most accessible source of funding for ventures such as house flipping. With them, you do not need the complex vetting and due diligence processes that banks, mortgage lenders, and credit Institutions within the financial system subject you to. You do not need a stellar credit score. However, they are taking a lot of risks and thus charge high interest for their loans. Their interest rates can be doubled what is charged by formal financial firms.
Another part of their accessibility is that they are quite swift in their delivery. You can get your loan processed and granted within a few weeks or days of application. However, there are instances where persons get them in a few hours. Thus, you can move with speed and acquire properties that have to be sold urgently, such as distressed-sale houses.
Private lenders may require an insurance policy, a mortgage, or a promissory note on the property to mitigate the risk they are taking. They might go as far as asking you to guarantee your loan with your assets. You can, however, negotiate this.
2. House-Flipping Investors
You might be surprised to know, but some investors specifically invest in house-flipping. They may be former house-flippers or persons who are just particularly interested in the niche for its potential high returns, amongst other reasons. They serve as a good source of funding.
Usually, these investors work together in groups or a crowdfunding format. However, you will need to convince them of your reliability, skills, and ability to deliver.
House flipping poses a lot of potential, but it is far from easy. Succeeding at it requires you to know a lot - about the market, investors, potential buyers, and much more.
This beginner's guide should give you an overview of how to get started.