Flipping is hotter than ever, with investors taking advantage of the combination of distressed owners and low mortgage rates to pounce on properties. Contrary to what you might think, you don’t need to have a ton of cash, or a ton of experience, to be successful at house flipping (but both definitely help!). You do want to pay attention to some key tips, though. Here’s where to start.
According to the recent ATTOM Data Solutions first-quarter 2020 U.S. Home Flipping Report, “Home flippers who sold homes in the first quarter took an average of 174 days to complete a flip, up from an average of 169 in the fourth quarter of the previous year but down from 180 days in the first quarter of last year.”
Will it take you that long? Maybe, maybe not. It depends on a whole lot of factors, like the condition of your home, how much work needs to get done, and how fast you can make it all happen. You may think you can turn it around in a month, and you may be right. Then again, that 174 days may look like nothing by the time you’re done. The trick is to be realistic, and even to overestimate the time it will take to get any permits, do any needed repairs, get your inspections, and get the home sold—especially if you have an investor who is expecting to be paid back quickly.
nd keep in mind that, “The longer it takes you to flip a house, the more you’ll pay in carrying costs, which include utilities, financing, and property taxes,” said Lending Home.
According to Fit Small Business, “Costs vary based on where the home is located, property type, and the extent of the renovations needed, but the total cost to flip a house is usually around 10% of the purchase price.”
But that doesn’t mean your flip will come in right at 10%. If you don’t have a proper contingency fund, anything that goes wrong could put you over budget and sink any potential profit.
Yes, it will open up the space and make it look lighter, brighter, and larger. And yes, you’ll probably also find horrible plumbing issues or faulty electricity or the need for a $10,000 beam to support the structure as soon as you do. Opening up the floorplan of an older home to make it more attractive to today’s homebuyers is a great idea, as long as you’re prepared for the potential problems.
Want to flip homes but don’t have the money for a down payment—or the credit to swing a loan? Many a flipper starts out in a partnership with someone who puts up the cash and splits the profit after the property sells. This is especially useful if you plan to buy homes at auction and need a lot of money upfront.
“Buying a home that just needs some cosmetic repairs and some TLC can drastically improve your return on investment,” said Lending Home. “New investors can learn as they go by starting with a home that just needs a little love, and work their way up to homes that need significant repairs.”
Is your intention to do all the repair and renovation work yourself on your flips? Be sure to prepare ahead of time. You don’t want to be learning on the job with money on the line.
If you’re planning to have others make the fixes, locate and hire them before you close escrow. Time is money.
f you’re eager to start your first flip, you might jump at a listing that costs more than it should—at least where your profit margin is concerned. This can be especially true if you go to an auction and get caught up in the frenzy. It’s important to set a limit—and stick to it—based on what you can legitimately afford, and your expectations for your profit margin.
If you’re not sure how to set your profit margin, consider the 70 percent rule.
“The 70 percent rule states that an investor should pay 70 percent of the ARV of a property minus the repairs needed,” said Invest Four More. “The ARV is the after repaired value and is what a home is worth after it is fully repaired.”