Beginner’s Guide: How To Flip A House

What Does It Mean To Flip A House?

House flipping revolves around classic “buy low, sell high” principles of real estate. The basic idea of house flipping involves (a) purchasing a home; (b) fixing it up by performing renovations, repairs and upgrades; and then (c) selling the property after you've improved it for a profit. Done skillfully, and with an eye toward minimizing tax liability, flipping a house can be a hugely lucrative way to earn income.

Another common tactic for flipping a house is buying a home while property values are rising. In a rising market, you might be able to get away with making few if any upgrades beyond necessary repairs, and still selling at a higher price due to overall rising market conditions.

Is House Flipping Profitable?

House flipping can be very profitable in a variety of different market conditions, but there are certain conditions that make it easier to turn a profit. When interest rates are lower, it helps a flipper's profit by limiting carrying costs. Another thing that helps make house flipping more profitable is the overall condition of the housing market in your specific area. If the housing market is stagnant or prices are even dropping, it makes it much more difficult to be profitable when flipping a house.

Whether house flipping is profitable in your specific situation will depend a lot on factors, including your market, the house itself, how handy you are and the overall economic situation both locally and macroeconomically. If you're considering flipping a house, it would be a good idea to make sure that you have plenty of cash reserves in place to help tide you over until your flip sells.

How Much Does It Cost To Flip A House?

Some of the costs involved in flipping a house include:

• Acquisition costs (to purchase the property, including closing costs, real estate agent commissions and other costs)
• Carrying costs (utilities, taxes and interest on any loans you have on the property)
• Rehab costs
• Sale costs (staging, real estate agent commissions and other marketing)

Depending on the house you're trying to flip and your own financial situation, you might be able to pay for the costs with cash or use a HELOC or a home equity loan¹. However, many house flippers need to or choose to get a personal loan to finance their flip.

How Long Does It Take To Flip A Home?

The average amount of time it takes to flip a house will vary widely depending on your market, your skills and the house itself. As a general range, most flips can be done in anywhere from 3 to 6 months. Keep in mind that this is just a rule of thumb, and many flips can take a shorter or longer amount of time.

How To Flip A House In 7 Steps

While every flip is different, here are a few of the steps that might be involved in flipping a house:

1. Research Your Real Estate Market

It is imperative that house flippers research their local housing market for investment properties. As the real estate maxim says, the three most important words in real estate are "location, location, location". Home flippers should look for many of the same benefits that a traditional buyer should look for in a property’s location, including low crime rates, quality schools and neighborhood amenities.

Any prospective real estate holding that you’re considering buying as an investment property needs to be in an area where homes are or will be in demand once fixed up. The idea is to get a bargain on a property that the market appears to undervalue in a prime location that’s poised to sell once repairs and improvements have been made.

2. Organize Your Finances

Once you’ve decided to pursue house flipping, you’ll also need to figure out how you’ll finance any purchase, as buying a home (and paying for repairs and upgrades) can prove a costly endeavor. While some DIY rehabbers and house flippers can afford to pay the purchase price in full, many others turn to a variety of financing options to help facilitate the deal. Just a few common ways that house flippers tend to pay for homes to fix up include:

Applying for conventional mortgages

Applying for a hard money loan

Paying with cash

Leveraging equity in a home they already own

Taking out personal or business loans

Partnering with friends and family to pool funds

Selling investment holdings or tapping savings funds

Not all flips will qualify for a conventional loan. If your flip needs significant repairs, many conventional lenders may not give you a loan. In that case, you may have to look for a hard money lender that specializes in these types of loans. A hard money lender may not care if there are major repairs needed, but they also charge interest rates much higher than those of conventional loans.

If you are aiming to take out a conventional loan, there are a few things that you can do to make sure you're getting the best terms possible. This includes strengthening your credit score, keeping a low debt-to-income ratio, and having sufficient cash reserves and savings.

3. Connect With Real Estate And Home Improvement Professionals

If you're already familiar with construction, you may feel confident undertaking a house flip. On the other hand, house flippers who lack DIY know-how should make sure to find local real estate agents and home renovation professionals who can help with a house-flipping project in fix-and-flip situations. Having a trusted team in place can give you the confidence to start your first flip.

4. Find The Right Home To Flip

Picking the right property to flip is both an art and a science. You’re looking for a house that’s priced just right, but also boasts significant growth potential, and is situated in a great area. Likewise, it’s important to shop in a neighborhood that will attract home buyers and make your job of marketing and promoting the property simpler when you're getting ready to sell.

There are a few places where you can look for potential flips. This includes searching for foreclosures, potential short sales, using the ATTOM^TM website and working with your local real estate agent. Your real estate agent can also help you estimate the after-repair value (ARV), which you can use along with the 70% rule to decide the price you can pay for your flip.

You'll also need to accurately estimate your renovation and carrying costs. Underestimating these costs can turn a profitable flip into one where you end up losing money. This is where having a team in place can be helpful as your real estate agent or contractor may be able to help provide guidance on how much your repairs will cost.

5. Make Upgrades

Depending on the home itself, there may be some repairs that are absolutely necessary (roof repairs, foundation work or other major home system). But in addition to these major repairs, you'll also want to look at making upgrades to make a property more appealing to potential home buyers. Again, this is where a professional like a real estate agent can be helpful – they can let you know what upgrades and finishing touches will provide the best return on investment.

6. Put The House On The Market

Once all your repairs and upgrades are complete, you’ll need to put the home up for sale. You can consider selling your home for sale by owner (FSBO). One advantage of doing it yourself is that you will avoid paying sales commissions. However, keep in mind that it’s often worth working with an experienced real estate agent. That’s because an experienced listing agent knows the ins and outs of your neighborhood, area, and market and how to best price and promote the home. Working with a real estate agent can help you get your property on your area's Multiple Listing Service (MLS), exposing it to buyers in the area looking for homes.

7. Make The Sale

Once you're under contract to sell your flip, it's time to start considering what's next. Hopefully your flip was a profitable one, in which case you may be looking for how to use the money you earned as a down payment towards your next flip. If you ended up breaking even or losing money, now is the time to consider what went wrong and how you can improve for the next one. You may also decide that flipping is not the right path for you and consider other real estate investment strategies.

4 Common Beginner House-Flipping Mistakes

While house flipping can be profitable, it's also common for beginners to make mistakes, some of which can be quite costly. Here are a few of the most common house-flipping errors, especially for first-time real estate investors.

1. Trying To Flip A House Before You’re Financially Ready

It is crucial that you have a stable financial situation and sufficient cash reserves before you try to flip a house. House flipping is one of the most cash-intensive forms of real estate investing, and if you don't have sufficient cash reserves, you may end up in significant financial pressure.

It may sound tempting to try to finance everything to be able to flip houses with "no money down", but doing so comes with significant risk. Unless everything goes right for you, this can be a common beginner house-flipping mistake.

2. Not Researching Your Real Estate Market

One of the most important factors in house flipping is market research. If you overvalue the after-repair value of your flip or underestimate the amount of your repairs, you can easily turn a potentially profitable flip into a money-losing venture. If you're very familiar with your local market, you might be able to do it yourself – otherwise, make sure to lean on your trusted team.

3. Aiming To Move Too Quickly

There are valid reasons to try to keep your flip moving quickly – after all, the sooner you're done, the lower your carrying costs are. But there are some negatives involved with trying to speed up the house-flipping process too much. You may end up cutting corners or not being able to do all the necessary upgrades to get the most out of your sale.

4. Attempting To Do Everything Yourself

Unless you are a very experienced real estate professional, you should be quite careful with trying to do everything on your own. It's rare for someone to have both the construction skills to make repairs and upgrades as well as the soft skills necessary to market and sell a home once it's ready.

For this reason, many experienced flippers know what they are good at, and have a team in place to take care of the things that they aren't good at. A good flipper knows when to call in professionals and rely on their expertise. Trying to do everything yourself may sound like it's saving money, but it's just as likely to end up costing you more money in the long run.

House Flipping FAQs

How much money do I need to start flipping houses?

There is not a set amount of money that you need to flip houses –  instead, the money you'll need will vary depending on the specifics of the deal itself. But stay clear of the trap to try and flip houses without sufficient cash reserves, which can lead to trouble. Try to have at least 3 to 6 months of carrying costs in place before you start your flip.

Is it still profitable to flip houses?

It can still be profitable to flip houses, but in some markets it has become harder and harder to find good deals. Higher interest rates, a slower real estate market and the increasing number of flippers all contribute to making things more challenging. Still, it is possible to find deals – just make sure to crunch the numbers before you invest and make sure that your flip is profitable.

What markets are best for flipping houses?

Flipping can work in most markets, but there are certain market conditions that make it easier to be profitable. This includes an economic situation with low interest rates and rising home prices. Still, it's important to understand that most real estate is local, and even when overall market trends aren't great, it's possible to be successful flipping houses if you find the right deal.

Do I need renovation skills to flip houses?

Having DIY or other renovation skills isn't a requirement to be successful flipping houses, but it certainly helps. Keep in mind that if you aren't doing the work yourself, then you are likely paying someone else to do the work. This can cut into your overall margins, making it harder for your flip to be profitable.

Do I need a license to flip houses?

Licensing requirements and other laws will vary wildly by your state, county and local municipality. In most locations, you do not need a license to flip houses, though some municipalities may require a real estate license or general contractor license. Check with your local government to see what licenses might be required in your specific situation.

The Bottom Line: House Flipping Can Be Profitable – But It Carries Risks

Flipping a house can be an enjoyable and profitable enterprise, though it may not be for everyone. If you’re considering becoming a house flipper, it’s important to weigh the pros and cons of house flipping before making an investment. The key is to do your research upfront, manage expectations, plan for unexpected hiccups, and know where to turn for assistance if you need it.

If you’re considering flipping a  house for the first time or starting your real estate business, you can download the Rocket Money℠ app today to help make sure that your finances are in great shape.