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How To Start House Flipping
Surfing T.V. Channels you stumble across yet another house-flipping show. ‘How many of these are there?’ you wonder as you start to watch. You see the montage, the grey paint, and glossy white subway tile paired with shaker cabinets. ‘Could it be this easy?’ You think to yourself.
More millionaires have earned their wealth from real estate than any other industry. House flipping is a great way to start your real estate investing journey and build your passive income.
The popularity of house flipping in every city almost proves how successful you can be. While flipping for the first time may be intimidating, finding the perfect flip is the hard part.
Knowing how to find the perfect flip, and what to look for is the first step to real estate investing success. Read below to find out what repairs to make, how to find the right flip, how to sell it, and how to buy it!
Finding a flip
Finding the perfect house to flip is no easy task. No flip you find with be ready to sell as-is. Most flips are in states of disrepair, dirty, and require a lot of work. To find the right flip, you need to make sure the home can resell, and at a higher value, once all the repairs are complete.
A Perfect Flip Will have the following:
- Great Location
- Safe Neighborhood and Good Schools
- No Major Projects
Great location offers easy accessibility and manageable commute times. No one wants to deal with traffic for hours. Make sure your flip has access to restaurants, fast food, grocery stores, gyms, and parks. These ancillary benefits will make your flip even more attractive to buyers!
A Good Neighborhood will be a crucial selling point for your flip and make future buyers feel safe. Look up the crime stats in your neighbourhood, and see the school ratings and make sure it is a great neighbourhood. We found that Zillow makes it easy!
Numerous extensive repairs can break your profit margin. Small and easy maintenance are ideal for a flip, such as new floors, and carpets. Foundational issues are a red flag, but a new roof along with kitchen and bathroom upgrades usually are upgrades that provide a reasonable return on investment.
Do your homework and know yours after repair value, and ideal selling price.
Once you have a flip in mind that fits these criteria, you can calculate your flip and budget for your Profit!
Calculating your flip
You will hear real estate investors, and hard money lenders throwing around these terms, ARV (After repair value) and ROI (return on interest).
You can use these to set a budget, save money, and profit from your flip.
Here are the formulas:
- ARV = (Property Purchase Price) + (Value of Renovations)
- ROI = (Rate of Investment) / (Cost Of the Investment)
Knowing the following will make it easy for you to understand your cost point, and prioritize your house flipping efforts and repairs. Make the most of your ARV and ROI. This way you can calculate for your profit, as long as there as no surprises.
By combining the property price, and the value of the renovations, you can estimate for your profit.
Financing your flip
Hard Money Loans make house flipping easy. Hard money offers house flippers a way to purchase a property, make repairs, and sell quickly, all without using the borrower's credit. If you are looking to make a profit from flips, use hard money loans.
Unlike other traditional loans, hard money loans are calculated on the after repair value of a property. That means that a hard money loan will cover the purchase and repairs of your property.
These credit free loans are backed by the after repair value of a property, so the interest rates on hard money loans and the rate terms do differ from a traditional mortgage.
Interest Rates: Hard money loans have higher interest rates than standard mortgages, anywhere between 10-16%. Hard money loans are short term loans, between 12-124 months.
The three most common types of house flippers use are:
- Fix, and Flip Loans cover the purchase of a property and helps fund repairs.
- Home Rehab Loans are perfect for upgrading features and various repairs.
- Bridge loans are used to cover funding gaps in flips and are great for refinancing.
Most hard money loans are issued with real estate in mind, so funding house flips is easier than ever!
If you are ready to apply for a hard money loan, make sure you have these six things:
- Property Address
- Purchase Price
- Loan Amount
- Photos of Property
- Property Plans
- A Flip Budget/Plan
With these in hand, you can use hard money to make the most of your flip.
Staging and selling your flip
Staging your home is a vital part of the listing process.
For house flippers who are looking to make the most from their investments, home staging is an absolute necessity. This staging company reported that staged homes sell for about 6% more on average!
These Easy Staging Tips Make It Easy To Sell Your Flip.
- Deep Clean Your Flip: Make sure your flip is spotless and deep cleaned to make the most of your beautiful space.
- Bathrooms: Use light to make the most of the space, and make sure to add a showstopping vanity. With the use of daylight bulbs, you can dramatically improve the area. Clean, crisp light transforms a bathroom
- Kitchens: Smart decorations, such as kitchen towels, rugs and table cloths that are modern and clean, can make or break your kitchen. Don’t clutter your kitchen, but accessorize. Smart accessories, like kitchen towels, fruit bowls, table cloths, salt shakers, and flowers, will make a flip feel more like home.
- Bedrooms: Mix and match textures. Add a headboard, and mirrors to make your space look larger! A faux white fur rug and sheer white curtains can add some drama to your room in a way that keeps it simple and not too romantic. You can mix-match textures with headboards, nightstands and lights. Try not to match too highly and have a pop of colour with small luxuries throughout the room.
Staging makes your flip easier to sell and make more from your house flipping efforts.
SummaryHouse flipping is a great way to start real estate investing if done correctly.
- How To Find The Flip: look for properties with a high resale value, in the right locations, and that require minor remodelling.
- Calculating Your Flip: Set a budget the smart way by using ARV, and ROI to invest in your property.
- Financing Your Flip: Most house flippers use hard money lenders to finance their flips, but there are other lending options available as all.
- Staging and Sell Your Flip: Are You Ready To Start Flipping?
About the author
Catherine Way graduated from Michigan State University with her Bachelor’s of Advertising with a specialization in Graphic Design. She is a freelance content creator and marketer for many facets of real estate, including commercial, residential, and mortgage industries. Currently, she writes for Prime Plus Mortgages - Phoenix Hard Money Lenders.
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