How To Flip A House: The Ultimate Guide For Beginners

This guide will help you understand how to start flipping houses. With proper planning, funding, house flipping budget, and good decision making you can operate a profitable house flipping business. House flipping provides an excellent opportunity to earn income, work in real estate investment and construction, and learn about the real estate market. So, let’s get started with how to flip houses for beginners.

What Is Flipping Houses?

House flipping is when a real estate investor purchases a home with the intention to improve the home and sell it for a higher price in the near future. The goal is to buy the home cheap enough and improve the home enough to sell if for more than the sum of the acquisition, holding, and rehab costs.

Successful house flipping simply requires having the right values in a math equation. Variables in the math equation include:

• The costs to acquire the property
• The cost to hold the property (insurance, property taxes, utilities, etc.)
• Rehab costs
• Cost of selling the home
• After repair value (aka, ARV)

What Is Microflipping?

Microflipping homes simply means the investor is targeting a home not needing major repairs and updates. Instead, the home only needs minor cosmetic improvements and can then be listed for resale.

Microflipping can be especially beneficial with flipping houses for beginners. Microflips are faster because there is much less to do. Additionally, a microflip will not require as large of a budget for repairs. Lastly, a microflip is a great way to dip your toes in the water and start small. Microflip can be a great way to start flipping houses for beginners.

What To Look For When Searching For A Home to Flip?

A lot of knowing about how to flip a house has to do with knowing which house to buy. Here, I will explain what you should be looking for. Think of this as a house flipper buyer guide.

• Housing Type – Home flippers like to focus on houses. But, do not forget to consider condos and townhomes, too. Those can make great flip opportunities.
• Price – The best candidate for a home to flip is the one priced at a meaningful discount compared to other homes recently sold in the neighborhood.
• Ugly – Ugly is easy to fix. An ugly house needing only cosmetic improvements can be a great home to purchase. These are the easiest homes to flip. It is important to have a good eye for design and consideration of how the home could look.
• Within Your Comfort Zone – Some homes are downright awful and in need of a total rehab. Carefully weigh whether that is too much for you due to your experience, access to contractors, and the capital you have to spend on repairs.
• Risk Profile – Evaluate the risks at the property. Septic systems are a risk because the septic system working today could have major issues in the not too distant future. Another example of risk could be an undesirable project nearby under consideration by the local government. The last thing you want to do is buy a property and watch a NIMBY (not-in-my-backyard) project start right in your backyard.

House-Flipping Loans: How To Get One?

House flippers have multiple options for getting loans to flip houses. As I explain these keep in mind there are two pools of money you will need: the acquisition money to buy the home and the rehab money to repair the home.

• Mortgage – Investment property loans can be used as loans to flip houses. An investment property mortgage on a house will require a 20% or 25% down payment along with meeting the other qualification guidelines. This will not be an option for a house that is in a severe or disastrous state of neglect. A mortgage will cover the costs of the acquisition but will not provide the funds needed to rehab the property. Expect to pay an interest rate slightly higher than what is currently offered for borrowers borrowing for a primary residence. Some mortgage lenders may even have specific products designed as house flippers loan.
• Hard Money Loans – Another source of loans to flip houses are hard money loans. This is a private money loan and may include a private mortgage on the property. Hard money lenders will loan you money to make the acquisition and complete the rehab. Hard money lenders may have requirements including asking questions about the property, reviewing a scope of work, and may ask to record a mortgage in the private money lenders name on the property. You may be required to put some of your own money in the deal, too. Expect to pay an interest rate anywhere from 1.5 to 3 times higher than the current standard mortgage rate.
• HELOC – HELOCs, or home equity lines of credit, are another class of loans to flip houses. A HELOC is a loan against the equity of some other property. You can use the proceeds from the loan to purchase and rehab a home you are flipping.
• Personal Loans – Personal loans can be used as loans to flip houses, too. A personal loan from a bank is relatively quick to get with little underwriting. Though the lender may ask about your plans for the use of the funds, using it to flip a home will unlikely be a red flag to the lender. It is likely the funds from the personal loan can be used to acquire or rehab the property.

After You Buy: What To Expect When Flipping A House For The First Time?

Once you have acquired the property you want to begin flipping the home ASAP. The first step is to list the projects to be completed.

The first step is to clean out the property. Clear the property of any personal property remaining from the previous owner. Next, start tackling major projects like a roof, window replacement, siding, and HVAC unit replacements if needed.

After that, it may be time to begin demoing areas of the home. Remove the demoed materials as you go to keep your job site clean. Then, start working through the home by project type. For example, if you are replacing drywall, do all of the drywall at once.

Final finishes should come at the end. This includes the final coat of paint, new floors, cabinet and vanity installs, and appliances if you intend to have a finished project with appliances. Carpet right at the end since you do not want to stain it. Make landscaping improvements last.

Insurance For Flipping Houses

You should absolutely get insurance for flipping houses. You can get insurance for flipping houses by speaking with an insurance agent about which coverages you should be buying. Also, inform the insurer about your intentions at the property. You will have many people doing lots of work at the property. You want to protect your entrepreneurial endeavor from liability in the instance one of those contractors gets injured on the job site.

What Is The Cost Of Flipping A House?

I am often asked “how much to flip a house?” I always reply with, “How much of what? Money? Time? Patience? Sweat? Stress? What are we talking about?” It’s more than just money when flipping houses.

Financial Investment

There is no single answer regarding how much it costs to flip a house. Each opportunity is different. Each has a different acquisition price, a different rehab allowance, and different carrying costs. Also, sometimes you will be using your own money, but other times you will be using someone else’s money.

If you must put a number on the financial investment of flipping houses, I would say about 60% to 70% of the ARV (after repair value).

Time Investment

Flipping homes takes time, so if you are already pretty busy it might not be the right business for you. In the beginning you will move slower because you are learning. As you complete more and more projects you will move more quickly. I would anticipate start to finish including selling the property to expect yourself to be involved for the next five to eight months.

How To Build Your House Flipping Team?

An important part of knowing how to flip a house is having a team of professionals ready to bring in their expertise to help you. Your team should include:

• A lender or money partner
• A savvy real estate agent
• An insurance agent
• An accountant
• A general contractor or task specific contractors.

Deciding how to use contractors, sourcing contractors, and keeping them is one of your biggest challenges to overcome.

Hire A Contractor

You can hire a general contractor to complete the rehab at your home flip. A general contractor will have the knowledge, experience, connections, and managerial know-how to get the project completed. The general contractor will source vendors, or subcontractors, to complete the work at the property. This frees you from having to make so many decisions. Additionally, you have just one party to communicate with regarding completion timelines and costs. However, hiring a subcontractor does typically eat into your profits.

Act As The Contractor Yourself

On the other hand, you can typically act as your own contractor on the project. Though this is cheaper it is on you to find, hire, and manage the subcontractors completing the work at your property. It will all rest on your shoulders to understand what the contractors are doing, the costs, manage the timelines, and address any conflicts arising as the projects get completed.

How To Sell A Flipped House?

The last thing to know about how to flip a house is how to sell the home once it is complete. Typically, there are two options when selling the home.

The first option is to sell your finished flip by owner (FSBO). A FSBO home sale will save you the costs of a real estate agent commission fees. However, you may not be able to market the property as successfully when selling the home as a FSBO. Additionally, you will need to understand the requirements and process of selling real estate in your state.

Alternatively, you can hire a real estate agent to sell your home. A high quality real estate agent has the skills, experience, knowledge, and tools to market your home to the masses. Additionally, the real estate agent can manage the minutiae of the transaction so your time can be spent on other things.

If you are flipping homes in Indiana consider contacting the Quadwalls Real Estate Team. Our full-feature home selling service includes low real estate commission fees. The Indiana home flippers we have helped have been satisfied with our services.

Is Flipping Houses Right For You?

There are many ways to invest your time and money. Flipping homes is one of those ways, but it might not be the best option for you. You should consider all the pros and cons of flipping homes.

Conclusion

I hope this has left you with an understanding on how to start flipping houses. House flipping is simply looking for an ugly house with some defects in a good neighborhood and rehabbing the property to its full value potential. Successful house flippers can operate an excellent business with great profit potential.

The Quadwalls Real Estate Team can help you flip homes in Northwest Indiana. We have helped both veteran and new real estate investors build their house flipping business. Start telling us what you are looking for by completing the Quadwalls HomeFinder Assistant today! Or, feel free to contact us.

FAQ

How Many Houses Can You Flip In A Year?

How many homes you can flip in a year is dependent on how much cash and labor you have at your disposal along with available opportunities for homes to flip. Remember, don’t buy a house to flip just to have a project. If it is just you and you are doing a lot of the work yourself, two flips in a year is actually pretty good.

How Can I Avoid Paying Taxes on a Flip?

You can avoid paying taxes on a flip by lowering your taxable earnings. Work with a tax professional accountant who can help you understand tax rules and regulations which you can benefit from because the cost of meeting the requirement is less than the tax of not meeting the requirement.