How to Flip a House: A Beginner’s Step-by-Step Guide
So, you’ve decided to enter the exciting world of house flipping. You’ve done your research, considered the pros and cons, and you’re ready to give it a go. But where exactly do you start? In this guide, we’ll take a look at the key steps you’ll need to take to flip your first house.
Find a Property
When looking for houses to flip, it’s important to think like an investor, not a homebuyer. You’re not buying a home that fits your needs, but a property that can be improved with little time and resources and then sold quickly.
The first thing you need to scout is a good location. Look for properties in up-and-coming neighborhoods or in residential areas that are in high demand. The type of property is also important. A stylish old house may seem like it will sell for a higher price after being fixed, but it may need extensive repairs that will set your budget back. Distressed properties or fixer-uppers may be cheaper but can pack higher renovation costs. Ideally, the property should be a modern construction, with three bedrooms and two bathrooms, in the middle to upper price range for the area it’s located in.
Unless you’re buying your investment property with cash, finding financing can be tricky but not impossible. If this is your first flip and you don’t have enough savings, you’ll most likely need to apply for a loan. However, conventional lenders perceive house flipping as a high risk, so you will have to prospect other avenues. For example, you can obtain a loan via a hard money lender, a private lender or a HELOC. Remember to factor in not just the price of the house but also renovation costs and carrying costs such as taxes, insurance and utilities.
Buy the Property
Once you’ve found your investment property, reach out to the seller and make an offer. Use the 70% rule to determine the maximum price you should spend on the house to turn a profit. Calculate the after-repair-value (ARV) of the property, multiply it by 0.7, then deduct your estimated renovation costs. If the seller accepts your offer, you can then discuss closing the sale.
Assemble Your Team
The sooner you can fix up the property, the sooner you can flip it. And nothing speeds up the flip like several pairs of helping hands. So ask friends and family to help, even if they’re just decluttering and repainting the walls. Also, find reliable contractors to work with if there are any repair jobs you can’t do yourself.
Repair and Decorate
To maximize time efficiency, draw up a task list in advance. Start by decluttering any old or broken items and giving the property a general clean. This will help you find any hidden problems that may be covered by old furniture, for example. Work your way through the major repairs first, such as patching up holes in the walls, changing the flooring, retiling and so on. Ideally, there shouldn’t be too many big jobs to fix. Then follow-up with cosmetic repairs, such as painting the walls, changing the carpets and blinds, landscaping, replacing door handles and light bulbs. The last items on the list are small decorative touches and one final general clean.
When renovating the house, avoid using the cheapest materials, but also expensive or custom-made upgrades and furniture. They will strain your budget and can result in delays. Also, avoid adding too many personal touches, such as paintings, odd decorations or bold colors. A few houseplants are cheaper and more effective than a full-sized wall decal, for example. The house should look inviting but also impersonal to allow buyers to better envision their life there.
List Your Property
With repairs and renovations done, it’s time to put your property on the market. Take plenty of good quality photos, maybe even a video tour and write a description highlighting all the property features, from square footage and the number of bedrooms to neighborhood amenities. It’s important to maximize your listing’s exposure, so try posting it on several platforms. You may find it helpful to work with a real estate agent at this point. Not only can they advise on how to tailor your ad to attract the right type of buyer, but also help negotiate a profitable sale.
Sell Your Flip
Pick the buyer making the most attractive offer, and make sure that the sale won’t take too long to close. Of course, a pre-approved buyer will speed up the process, but it’s still wise to consider delays caused by inspections, appraisals, title claims and so on. Otherwise, the selling process should be fairly straightforward. Remember to pay off your loan, declare your earnings and then… who knows? Maybe even start scouting the market for your next successful flip.