How to Flip a House

The real estate market has its highs and lows, but house flipping remains a reliable income source for the savvy investor. Everyone needs a home, so there will always be a buyer for the right property. If you’re considering flipping houses for profit, there are a few insider tricks to help plan for success.

What Is House Flipping?

Real estate investors will often buy a house that is listed at a lower price, make improvements to raise the market value, and then quickly sell the property at a profit. This is called home flipping, or fix-and-flip. 

Home buyers are looking for turnkey ready homes, so flipping houses taps into the market of those who are unable to make the upgrades themselves. Flipping homes may require anything, from a new paint job and some updated fixtures, to a full home restoration. Often these homes have problems selling because of poor curb appeal, which is an easy fix, or they have been on the market for so long that the owners are forced to drop the selling price. 

The key to flipping houses is to raise the home value without overpaying for the repairs. After updating, a house should be sold at a higher price than what the property was most recently purchased at. It is important to know the housing market before investing in flipping homes to ensure you know the going value of nearby properties to know what an improved home will sell for.

The fix-and-flip market is a good way to make money if you have everything in place to turn a house around quickly. The longer it takes to renovate and sell a home, the more expenses add up, and the less money can be made. When solidifying your plans for how to flip homes, think ahead to turn surprises into opportunities.

Renovation vs. Remodel

There are a few different ways to look at what is involved with flipping houses; a home is either being remodeled to increase the value, or it is being renovated to restore the value. The two terms are often used interchangeably, but they do have different meanings when looking into how to flip a house.

Remodels are generally voluntary changes, such as a fresh coat of paint, installing cutting edge appliances, or updated carpeting, to make the home look new. These are aesthetic upgrades or light repairs, and can include room additions or expansions to create a new floor plan. Remodels allow for modernizing the look of the property, perhaps disguising the age of the home, and improving the curb appeal.

If a home requires more structural repairs, such as complicated electrical fixes, plumbing work, or extensive retrofitting, it is known as a renovation. Depending on the age of the home, renovations can be costly and time-intensive because the main intent is to restore the house to a former glory, rather than create an entirely new design. Others are easily flipped with the help of a contractor. 

Flipping homes is often a gamble because repair that was expected to be simple and quick can turn out to be complicated and time consuming. Planned home remodels can turn into restoration projects (and vice versa) after a home is bought. In either case, a remodel or renovation, the ultimate goal is to improve the home value.

If a home requires more structural repairs, such as complicated electrical fixes, plumbing work, or extensive retrofitting, it is known as a renovation. Depending on the age of the home, renovations can be costly and time-intensive because the main intent is to restore the house to a former glory, rather than create an entirely new design. Others are easily flipped with the help of a contractor. 

Flipping homes is often a gamble because repair that was expected to be simple and quick can turn out to be complicated and time consuming. Planned home remodels can turn into restoration projects (and vice versa) after a home is bought. In either case, a remodel or renovation, the ultimate goal is to improve the home value.

How to Get Started Flipping Houses

The cost to flip a house can be intimidating to anyone just starting out flipping homes. Not only does it require buying the property, it also brings months of construction costs, from materials to contractors, realtors fees, inspection costs, and more. Even if you are personally an all-around handyman, you’ll need a plan of attack and a team in place to get a full home restoration project done on the demanding schedule required for flipping homes at a profit. 

When it comes to figuring out how to flip a house, where do you start? Here are three things to line up before you start house hunting.

1. Build Your Team

Flipping homes is easier and more profitable when you have a network in place to move every project along quickly and efficiently. It helps to already know how to flip a house, and to know a team of people who can help get it done. From the contractor’s wholesale building materials salesperson, to the staging professional you enlist to help sell a completed house, create good working relationships with like-minded specialists in the field. 

Your house flipping team can include any of the following professionals:

• Realtors & property owners to find the best leads on available properties and prices.
• Architects & designers for planning any remodels.
• Contractors to help with property improvements.
• Lenders, CPAs, & accountants to ensure all money is handled efficiently.
• Lawyers & legal advisors to handle the necessary contracts.

Home inspectors to coordinate inspections for purchases, permits, and sales.

2. Create a Business Plan

With schedules, costs, and overhead to consider, flipping houses is a business. Every project will bring a unique set of advantages, risks, and challenges. It is important to establish measurable goals, timelines, and strategies to ensure profitability before you invest in a property.

 The business plan doesn’t have to be a perfect contract or a public document. Look to the plan as a way to solidify your long-term goals in writing, for yourself and your team. As you learn how to flip a house, do the research to present market analysis, financing plans, and flipping and exit strategies, in advance of every home restoration investment you make.

3. Secure Financing Early

Because it is an investment, flipping homes requires money in advance of any purchases. It’s a good idea to create a formal business entity, such as a sole proprietorship, registered partnership, limited liability company (LLC), or an S corporation. 

A business license helps minimize risk to your personal assets and simplifies the business bookkeeping. Real estate holding companies can open bank accounts and be pre-approved for loans, from hard money loans to commercial loans. A company’s credit score, the amount of the down payment toward the loan, or the amount paid in cash can often give the upper hand in negotiating the cost to flip a house. 

The amount of money required up front will depend on the cost of the fix-and-flip home and the cost of your team. The difference between these costs and the eventual sale price after the updates to the home is the profit from the sale. The resale amount is known as the ARV, or the After Repaired Value. 

To make it a worthwhile investment, it’s best to buy the property at a lower rate, keep repair costs low, and then sell it for a higher, more competitive market price. The 70% rule of flipping houses suggests that you buy a property at a price that is no more than 70% of the estimated ARV. 

For instance, if a house is listed at $145,000, it can be flipped for a cost of $30,000, and still return a profit in the same market with comparable homes in the neighborhood selling around $250,000. It’s a matter of finding the best prices, in the best locations, at the right time.

How to Flip a House: Step by Step

With your team and a solid business plan in place, the next step is to flip a house. As you can see, there’s more to learn about how to flip homes than just swinging a hammer and adding new paint. There are important considerations when looking for the right house to flip, so don’t skip any steps as you work toward the goal ARV. 

Here are the 5 steps to flipping a house:

Step 1 - Find the Right House to Flip

The first consideration when shopping for the best home restoration to flip is the asking price. Determine what the sale price could be after the home is remodeled or renovated, compared to the home values selling in the area around the property, and negotiate for a purchase price no more than 70% of the ARV.

From there, work with a realtor to identify profitable selling points within your target ARV range. Keep in mind that home buyers prefer prime locations, and the demand raises the potential selling price. It’s also worth considering that the home should be located in an area where you can visit to check on the status regularly.

Size up the curb appeal of the front porch, the landscaping, and the visual layout of the home interior. Look to the home inspection reports to form an idea of what kind of repairs and updates will be needed to get the house turnkey ready. Get an idea for any changes that could be made to increase interest and add value.

The less work to be done, the faster you can flip the home, but a quick turn-around won’t guarantee the highest profit. Make sure you have established a network that can handle whatever specific restoration projects will be needed for the fix-and-flip.

Step 2 - Estimate the Costs and Timelines

Once you have a possible property identified, before you make the purchase, do the math. Estimate the costs of the remodel or repairs. This can be a rough road map that includes the costs of materials and contractors fees. Leave a little extra allowance for any potential surprises and complications that may arise along the way. 

These estimates should also include a timeline of when the project will be completed. Permits and inspections will have to be arranged and paid for, so coordinate with the rest of your team to be sure the project will line up with the closing dates and costs.

Step 3 - Get the House

Once you know the project will fit into your budget, resources, and time frame, make a bid to get the house. Remember to keep the bid below the advised 70% rule so you have enough profit between the cost to remodel and then flip the house.

Step 4 - Make the Improvements

Schedule the home restoration projects with your contractors and handymen. It’s a good idea to personally monitor the progress to be sure everything sticks to the budget and timeline you arranged ahead of time. Flipping houses is an active investment, just like your stock portfolio, and you should spend your money wisely.

Step 5 - Sell Your Flip

As the curb appeal improves, it’s time to check that the local housing market is ready. When the prices are right and the home’s ARV is in line with the sale prices of comparable homes in the area, list the home for sale. Make sure all information advertised in the listing is accurate to the changes you have made, to maximize the property value and ensure you get more than the asking price in sale negotiations. 

Lastly, work with local realtors to start showing the home. Bring in furniture and accessorize the home - called staging the house - to help potential buyers visualize their own style, rather than simply stare at empty floors and blank walls. The finished flipped home should be comfortable and welcoming to prospective buyers. A turnkey ready home will sell quickly when it offers everything a new buyer would look for.