Flipping houses, or buying homes to renovate and sell them for a profit, has become an increasingly popular way for people to make money in the real estate market. However, flipping houses can be a risky business, and it requires a certain level of knowledge and skill to be successful.
At New Again Houses, we’ve been in the business of flipping houses since 2008. Our franchise owners are actively impacting the housing in their communities through our unique franchise model that guides them in building a business that delivers stunning remodels through quality construction projects. Years of experience have taught us a few tricks for getting into the ever-growing business appeal; house flipping.
Before you dive head first into a house flip, it is essential to educate yourself on the real estate market, renovation processes, and financial management. Attend seminars, read books, and talk to people who have experience. By educating yourself, you can avoid common mistakes and increase your chances of success.
"One of the most challenging aspects of real estate investing is that the critical numbers (Construction Budget, ARV, Offer Amount, even Appraisals!) are largely subjective. Investors long for a black and white answer to each question those numbers represent. What is this property worth? How much will it cost to fix it? Etc… What we find is that those numbers require a great deal of knowledge, often in very distinct disciplines. We believe leveraging relationships goes a long way towards educating your perspective. Find trustworthy professionals whose goals are aligned with yours and establish win-win relationships. Even so, no one will care as much about your success as you do. We establish processes and are disciplined to follow them in order to minimize risk."Sam Ferguson, Vice President at New Again Houses
A business plan is an essential tool for any real estate investor, including those interested in flipping houses. A good, comprehensive plan should include your goals, timeline, and budget. You should also identify your target market and how you plan to market your property to potential buyers.
Flipping houses requires capital, and you may need to secure financing to get started. Typically, you can approach traditional lenders such as banks or consider alternative financing options like hard money loans or crowdfunding. Finding the right lender that suits your needs as an investor can be difficult, but it is crucial to your success to choose a financing option that aligns with your business plan and budget.
Look for properties in desirable neighborhoods, with low prices and high potential for appreciation. This will help you get more profit out of the flip by adding more value to the construction you put into the home. You should also consider the condition of the property, as it will affect the renovation costs and can quickly sway the potential profit margin out of balance.
"Identifying the “right” property for a flip is all about knowing your numbers. At the most basic level, your purchase, construction, and resale values have to make sense so that you come out ahead. On a deeper level, the efficiency of one job vs another, the relative risk of any given opportunity, and the cash needed to complete the deal are all vitally important. We use proprietary software to quantify those numbers and make decisions that work with our goals. Know your numbers and be strategic in the decisions you make to best position yourself for success."Sam Ferguson, Vice President at New Again Houses
Renovations are a significant part of flipping houses, and you need to estimate the costs accurately. Take the time to assess the property and create a detailed budget for the renovations. Consider the cost of materials, labor, and any necessary permits. It is essential to stay within your budget to maximize your profits.
The relationship between a house flipper and their contractor can easily make or break a renovation project. You will need a reliable contractor that communicates well with you about the projects and is capable of meeting deadlines. Time is money, and the longer it takes to flip a house, the lower your profit margin will be.
Take the time to research and interview contractors, and ask for references. Attempt to choose a contractor with experience in renovations similar to what you need and a proven track record of delivering quality work. You may have to filter through a few different contractors before you find the right fit. Don’t hesitate to move on if the relationship isn’t meeting the requirements.
Flipping houses can be time-consuming, and it is crucial to manage your time effectively. Create a timeline for your project and stick to it. Be realistic about the time it will take to complete each stage of the renovation, and account for unexpected delays. Effective time management will help you stay on track and maximize your profits.
Marketing your property effectively is essential to finding the right buyer and maximizing your profits. Consider using professional staging services to showcase the potential of your property. Use high-quality photos and virtual tours to attract potential buyers online. Work with a real estate agent who has experience in selling flipped properties and can help you price your property competitively.
Flipping houses can be unpredictable, and it is essential to be prepared for the unexpected. It is not unusual for construction and permit delays to occur or extra costs to arise during the renovation process. We create a “contingency” line item for every construction estimate that is a percentage of the total budget. The percentage varies depending on the complexity of the flip.
When something unexpected does arrive, it always takes time to solve the issue. Time is your enemy in a flip. Once the purchase is complete there is typically a deadline to satisfy a lender’s note terms. We try to start our projects quickly and have certain time specific milestones to monitor the progress of the flip. The earlier you identify the issues, the more options you have to create positive solutions.
Flipping houses is a learning experience, and it is important to learn from your mistakes. Take the time to assess each project and identify areas for improvement. Use your experiences to refine your business plan and approach to future projects.
Before franchising, we had been in the business of flipping houses for over 10 years. We used the lessons learned from that time to build experience directly into our software, processes, and systems that we equip our franchise owners with so they can bypass making some of the same initial mistakes commonly seen among new house flippers.
Flipping houses can be a lucrative business, but it requires knowledge, skill, and careful planning. By educating yourself, developing a business plan, securing financing, identifying the right property, estimating renovation costs, hiring a reliable contractor, managing your time effectively, marketing your property, and allowing room for error, you are setting yourself up to realize more success.