Here’s how you flip a house in 2020! This video covers the first few steps you have to take when flipping a house! Enjoy!
How To Flip A House In 2020:
What Is House Flipping?
House flipping is when a real estate investor buys houses and then sells them for a profit. In order for a house to be considered a flip, it must be bought with the intention of quickly reselling. The time between the purchase and the sale often ranges from a couple months up to a year.
There are two different types of house flipping:
An investor buys a property that has potential to increase in value with the right repairs and updates. After completing the work, they make money from selling the home for a much higher price than what they purchased it for.
An investor buys a property in a market with rapidly rising home values. They make no updates, and after holding the property for a few months, they resell at a higher price and make a profit.
We’re mainly focusing on the first definition of house flipping and providing you with tips to help you choose a property, make renovations, and sell the smart way.
1. Finance the House Flip With Cash
Flipping houses can be a risky business, and it’s easy to see why adding debt into the mix only makes it more dangerous. Here’s why we always recommend you flip a house with cash:
No interest fees. House flippers who borrow money may pay interest for months, which only increases the amount they have to sell the house for just to break even.
No rush to sell. Using debt to finance a flip can cause you to act out of desperation. If you can’t get the house sold, you’re likely to lower your price and cut your profit. Cash-only house flippers can wait out a slow market because they don’t have interest payments piling up against them each day it doesn’t sell.
No debt to hold you back. Most importantly, doing any kind of “investment” with debt is a dumb plan. Period. Trying to sell a flipped house for more money than you invested in it is already a risk—even with cash. Using debt in the process skyrockets your chance of losing money if there’s a hiccup in your plans.
Let’s look at an example to see why using debt to flip a house isn’t worth it: You take out a loan to purchase a house to flip for $130,000. You finance an additional $30,000 for renovations and hope to sell the house for $200,000 to keep a nice profit. Sounds like a great plan, right?
All seems to be going great until an unexpected repair costs an extra $2,000. And then renovations take six months instead of four, costing you an extra $3,000. When you list the home, it sits on the market for a month before you’re forced to drop the price and sell it for $185,000.
A month later you close and get your payout. But a huge chunk of your payout goes toward paying back the money you borrowed plus eight months of interest! And that’s on top of the usual selling costs like agent commissions, taxes and title fees.
2. Know the Market
A lot of house flippers get excited about their next project and can ignore this less glamorous side of the business. But if you don’t have a good understanding of the market and real estate trends in your area, you could run into the following issues:
You don’t know if you’re actually getting a good deal on the house you’re buying. The sale price needs to be low enough so you can do the renovations and still come out ahead when the house is priced at market value.
You can’t accurately identify the home’s potential value. Your vision for the home must fit the reality of the neighborhood and the ability of the neighborhood’s residents to afford the home you create.
You don’t know how to price the house. If you’ve bought a house in a neighborhood of mostly $130–150K homes, you’ll want to price your flip at the lower end of that range when it’s time to sell.
So how do you get a deep understanding of the market that makes for a successful flip? Find a real estate agent with years of experience in your area. Your agent can help you target your home search to the right neighborhoods based on your price point, budget for renovations, and desired profit.
4. Invest in Smart Renovations
5. Get Guidance From a Local Real Estate Expert
Can you make money from house flipping? When it’s done the right way, you definitely can! In 2019, flipped homes sold for a median price of nearly $218,000 with a gross profit of almost $63,000.3
Keep in mind that the gross profit doesn’t include the amount spent on repairs and renovations. But if you’re able to flip with cash and stay in your budget for renovations, it’s completely possible to make a great return on your investment.
The key to flipping a house successfully is to do it with cash, make a smart investment in the type of house you purchase, choose renovations in your budget, and sell it quickly.