Flipping Houses 101

One of the first things you learn about how to get started flipping houses is that it can be either a part-time interest or a full time job. It depends on the information and resources you have available — such as the skillset provided by a network of professionals familiar with flipping houses. 

Every fix-and-flip home improvement project will be unique. The finer details of how to flip homes will change with every real estate market, but there are a few insider house flipping tips that hold true.

The Best House to Flip

There are many variables that determine what makes a home perfect to flip — from the price, to location, to the amenities and features of the neighborhood around it. Doing your research is key to finding the right property for a successful flip. 

The Best Price

A “buyer’s market” is everyone’s favorite time to purchase a home. It’s particularly important when flipping houses. There’s a specific ratio to aim for in order to make sure you get the most from your investment. Home lenders call this the 70% rule. 

The 70% rule refers to the purchase price of a property compared to its ARV, or After Repaired Value. The ideal is to flip the house for 30% more than what it was bought for. 

In order to determine what the ARV of the house will be, look at similar homes in the area — known as “comparables.” Check the real estate market statistics to find out what prices the same property size, square footage, layout, and similar features are selling for. Add the value of the home restorations to the cost to purchase the home, then factor in the market value of comparable homes to determine the ARV and whether the property will return a profit. 

The asking price on most home sales can be negotiated to accommodate serious bids. The lower the purchase price on a house, the more profit can be made from the ARV at the time of resale. 

• If the property requires repairs, bid wisely to allow for correcting those problems. 
• Permit or inspection requirements should be included in cost considerations.
• Even a misleading error in the listing is a good starting point for adjusting the price to a number ideal for flipping houses. 

The 70% rule is a good target, but there’s still an element of risk and luck in the real estate market, so it gets down to what can be negotiated. Keep in mind that the cost to flip a house should always be lower than the price you can sell it for. If the numbers don’t line up in your favor, walk away and look for the next prospective house.

The Best Neighborhood

When it comes to flipping houses, price isn’t everything. The location of the house plays a big part in estimating the ARV. Prospective homebuyers are going to bring an endless list of their own must-haves to every home they consider, especially when looking for a turnkey home, free of needed improvements. While you can’t anticipate every buyer’s priority, there are a few that you can reliably work into your own expectations in the search for a fix-and-flip property.

A neighborhood often reflects the lifestyle of the people who live there, based on the amenities it offers. 

• Look for nearby schools and the school district rating. An in-demand school district raises the home price as families compete for enrollment in higher ranking schools. 
• Sidewalks, parks, and pet-friendly greenspace appeal to more active lifestyles and help create demand for a home. 
• Libraries, shopping outlets, restaurants, and airport access close by save everyday commute time and costs, which can be a bonus convenience that tips a home sale in your favor.

Communities governed by a homeowners association offer many perks of membership, but they may have different rules that property owners must agree to, and they charge regular HOA fees. The added monthly cost and contract obligations to the HOA can add to the price of the home and be a stumbling block in sale negotiations. 

When planning how to flip homes, it can be helpful to work with a local realtor to get a feel for what trends are selling. They can provide insight into what kind of features a potential buyer is looking for, which can help guide any remodeling choices you make. Find out how long homes in the area are staying on the market, and if they’re selling for their asking price. That information can help determine a timeline for flipping a house, and if the investment into making changes to the home would be returned.

A final note on neighborhoods: as the property owner, the progress of any home restoration project impacts your bottom line and it is best to know the daily condition. It’s a good idea to pick a neighborhood that you can travel to regularly, in person, to oversee the status of the flip.

The Best Size

Another price influencer for home sales is the lot size. Acreage can add to the purchase price by including established landscaping, driveways, and additional outbuildings, like sheds, or workshops. Because the perfect home will look different for everyone, a spacious lot size can mean potential growth for some buyers, or increased upkeep for others. This makes lot dimensions alone a difficult determining factor for flipping houses.

The square footage of the living space on a property is the most relevant consideration when flipping houses. Real estate market prices are broken down into the house’s price-per-square foot, which will influence the after repair value of a home restoration or remodel. Adding square footage to a house can be an expensive construction project. The key to flipping homes is finding the structures you have the resources to improve, so look for an existing size that will produce a reasonable ARV while keeping the cost to flip a house low.

The Best Renovations

The ideal repairs required to flip a house are simple, quick, value-adding remodels. Consider whether you have the resources in your home flipping network and budget to do a full renovation vs. remodel. 

It’s best to hire a contractor skilled at the specific demands of the property to ensure the best results. A remodel could mean taking down a wall to create an open floor plan, or adding extra closet space or a pantry organizer. Often more extensive home restorations are called for in order to really improve the value. 

Homes with structural issues - such as disaster damage, pests, or settling foundations - can quickly become expensive and problematic. When rebuilding becomes necessary, the extra materials, permits, and other fees can drive up the construction costs and push back timelines. Common problems like dry rot, black mold, or termite damage could require taking a room down to the studs, or the entire house down to the foundation. 

Signs of these problems may show up in home inspections and should be considered carefully before placing a bid. If the selling price is low enough to risk the potential surprise costs, the return on a refurbished home could pay off. It’s often wiser to walk away from the deal, however, and find another property.

Cosmetic improvements are the reliable go-to for many fix-and-flips. 

• Adding or removing non-load-bearing dividing walls can make a room seem bigger and improve lighting.  
• Fresh paint in every room or a remodeled bathroom can add years to the life of a home. 
• Updated carpet or refinished wood flooring can be arranged quickly with the right contractors. 
• New door hardware can revive the curb appeal of the house and improve the appraisal value.

There’s more to flipping homes than determining if you or your team have the skills to make the repairs. To successfully turn a profit in the competitive market of flipping homes, look for houses that match both your budget and your team’s resources to make the flip.

How to Flip A House

It starts with that perfect house — the price, location, and list of projects all line up with your budget and timeline for flipping homes. The next step in how to flip a house is to make the bid, sign the contracts, and buy the house. 

House flipping tips to keep in mind:

• Have all funding lined up ahead of closing, including closing costs.
• Remember the 70% rule to minimize the risk of investment losses.
• Negotiate for a lower sale price based on required restorations and renovations, or documentation errors.
• Cash offers are more attractive to buyers and can be an incentive to accept a lower price. 

 Once the sale is complete, start renovations and repairs quickly. The sooner the changes are made, the sooner the home can be put back on the market to see the return on your investment.

Don’t over improve. The neighborhood market will still be the ultimate indication of how much the home will sell for, so raising the ARV above the average sale price will hurt the chances of selling the house in a timely manner, or at the asking price. 

Staging a House

Before putting a remodeled home back on the market, it can be useful to outfit it with basic furniture and accents for public showings. This is called staging a house. According to the National Association of Realtors, staged properties sell faster and at a higher price than unstaged homes. 

A stylishly furnished home will appeal to many buyers. The living room, master bedroom, and kitchen area are the most important rooms to stage. It should give the impression of a lived-in home and offer an ideal, picture-perfect example of what they could replicate themselves when they own the house. 

• Aim for an open, bright look, with functional and up-to-date pieces and fixtures.
• Keep it simple, showroom-ready, and arranged in an uncluttered layout.
• Rent furniture, or buy your own to be reused with each new property if you’ll be regularly flipping homes. It can be stored in a storage unit between projects.

While the property is on the market, check on it frequently and keep it clean. Include a variety of accents like curtains, wall art, and fresh flowers in vases. Keep the property free of distracting odors or sounds, like dripping faucets. These can raise red flags for potential buyers and should be taken care of before showing the property.

Get the Most from Flipping Homes

Flipping homes means renovating a low-value property into a turnkey home with high curb appeal. Once you know how to flip a house, even the variables between markets can be planned for. It takes preparation with tips like these and a savvy knowledge of the housing market to make the best purchases and improvements.