The SMART Way To Flip Houses

House flipping is a type of investment strategy that involves purchasing distressed properties, fixing them up, and reselling for a profit. As with any other kind of investment, it is about buying low and selling high. In a hot real estate market, where house prices are rising rapidly, an investor can realize a profit from either capital improvements that increase property value or from the price appreciation in the market. Real estate investors can generate a steady flow of income by flipping multiple houses simultaneously or engaging in frequent flips.

For those desiring financial freedom, house flipping, and other real estate investing is a lucrative way to generate wealth. However, profitable house flipping requires being savvy, strategic, and SMART.

Stay Focused

Staying focused on your goals will help you through the more challenging aspects of house flipping. House flipping involves taking risks, and many new investors must first funnel through their fears of losing money. You should treat your house flipping investment strategy like a business that requires planning, knowledge, and dedication to be successful. Create a plan, set your goals, and stick to your investment strategy.

Don’t jump into every deal and never make decisions rashly. Do the research and analyze whether a property fits with your investment strategy. Is it in your targeted neighborhood? If you make mistakes along the way, which is highly likely, learn from those mistakes and press forward.

Money Matters

Regardless of what anyone tells you, investing in real estate is expensive. Many people claim that you need “no money” to invest in real estate. I have attended webinars, paid training events, and free seminars. Repeatedly, I hear the claim that even if you are broke, have terrible credit, or can’t pay your bills, it’s a breeze to flip houses using “other people’s money.”

These experts state that you can find a good deal, get a hard money lender to provide financing, sell, and make a profit. However, finding these deals are not always easy. True, a hard money lender will evaluate the deal itself in determining whether to lend you the funds. However, they also assess your credit, and if you are high risk, they will charge you higher interest rates. These types of loans most often carry double-digit interest rates. You also have to pay fees upfront. What’s more is that they are short-term, which creates complications for you if your property stays longer on the market than you anticipated.

Remember, with flipping properties, there is no guarantee of how much the property will eventually sell for after renovations. Even with a low purchase price, after renovation costs and holding costs, every dollar spent on interest adds to how much money you need to make on the sale just to break even. Also, consider that you may encounter unexpected structural issues that you did not include in your original rehab estimate.

So, what should you do if you have bad credit and no money? You should place a high priority on improving your credit and building a strong financial reputation. However, even if you have bad credit and want to invest in real estate, it is not impossible. Focus on finding excellent deals. Ensure you have a large enough cushion so that you can make a profit even with high-interest financing.

Don’t get me wrong, private and hard money lenders are great options for seasoned investors. Many investors have successfully leveraged this strategy to flip multiple projects simultaneously and grow their investment faster. 

Ace the Analysis

House flipping involves a great deal of analysis. You must research the market such as the average sale price in the area, how many days houses stay on the market before being sold, and the average list-to-sale price. You must understand the city and the neighborhood. An analysis of the demographics of the area is essential such as population growth, unemployment rate, crime risk, and school quality. These demographic factors have an impact on real estate values and risk exposure.

In addition to location analysis, you must also analyze each property you consider purchasing. A comparative market analysis (CMA) is critical in assessing how much the property may sell for, referred to as the after-repair value (ARV). Estimating the ARV will help you to determine the maximum price you should pay for a property. Many investors use the 70% rule. This rule states that you should purchase the property for no more than 70% of the ARV minus repairs.

Here’s an example of how this rule is applied. If you calculate that after repairs, a property will sell for $160,000 (this is the ARV), and you estimate that the repairs will cost $50,000, then according to the 70% rule you should not spend more than $60,000 (160,000 x 70% – $50,000 = $60,000). A vital number in this calculation, and a harder figure to predict than ARV, is the repair costs. Experienced investors can estimate this number within minutes of visiting the property. Less experienced investors may have to rely on their contractors or solicit contractor bids to determine the repair costs. Ultimately, a real estate investor should establish a system of estimating these costs quickly.

If you can master the analysis required in flipping properties, you will increase the probability of making a substantial profit.

Realistic Expectations

Flipping houses is not a get-rich-quick investment strategy. Many spectators watch the TV shows and listen to the real estate gurus who boast of the profits and the millions they make in real estate. They make it sound easy: buy a house, renovate it, sell it, and cash in on a huge profit. The reality is, real estate investing is hard work, and it involves taking risks. Generally speaking, the higher the risk, the greater the return. However, regardless of the investment, a return is not always guaranteed. Several factors can affect whether you make a profit. You can purchase the ideal property, in a great location, for the right price and still make no profit.  Factors that can affect your success include things both in and outside of your control. Some risks include changes in the economy, contractor issues, and unforeseen expenses.

The good news is that unlike some traditional investments, such as stocks and bonds, as a real estate investor, you have full control and responsibility for managing your investment. Whether you make it or not depends highly on your actions. Implement risk control measures and always have alternate exit strategies. Even then, you should still prepare yourself for disappointments. Go into it with the expectation that you’ll initially or inevitably slip up. It takes experience and wisdom to learn from your mistakes and become successful.

Team Effort

If you are interested in flipping houses, you need to build a team. Your team should consist of, at the minimum, real estate agents, contractors, property inspectors, a certified public accountant (CPA), and a lawyer. These experts will help you generate more income and mitigate risks. A CPA who specializes in real estate can assist you in saving thousands on taxes, a lawyer can assist you in drafting and reviewing contracts, and a real estate agent can help you find the ideal property. If you intend to finance property acquisitions with cash rather than using traditional financing, you may also need to secure your escrow officers and an insurance company for property insurance. Once you have a reliable team, continue to build and establish trust for a mutually beneficial relationship.

Are you a contractor? We continuously seek contractors to join our team. If you are interested, CLICK HERE.

Final Thoughts

Real estate investing is a lucrative way to build wealth. If you are willing to do the hard work, research, and commit the time necessary, you can reach your financial goals. Flipping houses can be a lucrative way of generating wealth and financial freedom if done right.

If you are interested in learning more about real estate investing, want tips on selling your home, or want to gain insights into finance and money management, click below to subscribe to future blog posts.

2 thoughts on “The SMART Way To Flip Houses”

  1. Wow, incredible blog layout! How long have you been blogging for? you made blogging look easy. The overall look of your website is wonderful, let alone the content!

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