Flipping Houses is hot, sexy and easy right?! You’ve seen it on TV 🥂. Every “cave man” with a hammer can do a demolition. Really entertaining, for sure, but how do you avoid all the “tv rehab drama” and actually make the money 💰?!
What’s “Flipping”?
Flipping is a term used in the US to describe purchasing a revenue-generating asset and quickly reselling (or "flipping") it for profit. Though flipping can apply to any product or asset, the term is most often applied to real estate.
Did you know that the wealthy consider the ultimate “flipping” to be an Initial Public Offerings (IPOs)? You can start with flipping your products on E-bay, progress to Dropshipping on Amazon, ascend to Flipping Real Estate and finally retire with a Big Bang IPO. Okay, we are way off tracks here! But let this one sink in for a while, come back often and in time you will get the drift….🧐
Back to “Flipping”; It is pretty much “buy a house, fix it up and sell it for a profit.” It sounds like a - magical money-maker no brainer - but it is also possible to lose a lot of money if you don’t know what you are doing. The truth is it takes a lot of time to find the right deal, find the right financing, find the right contractor, decide what to repair, maintain a property, value a property, make sure all the needed repairs are done and then sell the house. Fix and Flipping is not something you can just do as a side hustle and be successful. If you don’t take the time to do things right, you can turn a nice profit into a big loss.
You see, beyond just explaining the fundamentals, our true goal is to inspire you to think like and create your own “Flipping Business” (with a capital “B”!). Something that will allow you to reach your financial goals and create a business that works for you, rather than you working for it. The ultimate goal here is to use “The Big 4 $elling $trategies to propel you into Investing”, the only true way to riches!
How The Process of Flipping Works in 4 Steps
You can break “The Process of House Flipping” down into 4 steps. These are the four basic parts of the house flipping process from beginning to end.
The Buying Process: Mastering how to find, analyze, and buy houses is by far the most powerful skill to grasp! It is even doable to create a business on this skill alone! The buying process ’s main focus areas are:
Property: What type of properties will you focus on buying?
Location: Where (what locations) will you focus on, in looking for these properties?
Deal Analysis: What will you offer for these Houses?
Acquisitions Strategy: Which methods & systems will you use to find and buy these houses?
If Buying is the most crucial piece of the Flipping Process. Deal Analysis is the rock-solid foundation from which that piece is made. It helps you determine the amount you can pay for a property in order to cover all the required expenses involved in flipping your property and still make a profit. If you don’t learn and understand how to properly analyze and evaluate the property you will not last long in this business or investing in real estate period, end of story.
The goal behind analyzing a deal for “Flipping” is to find the ARV (After Repair Value). This is the price the house will sell for once you have done your rehab, improvements and up to “retail” condition.
Now you can work backward and take out all the costs like financing, selling (real estate commissions), carrying/ holding costs (insurance and property taxes) repair costs, closing costs and lastly your desired profit in order to “exactly calculate & know” your maximum offer price. This is the price you must stay under to make your money!! Anything above that and the deal goes south. So you make a deal by “calculating” your deal 💰!
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The Financing Process: Financing is just a fancy word to say you need the capital (or “money”) to pay for the property. Bank Financing is one way to get money for a property, you can use your own money (although this should be your last go to method) and also a whole range of “private money” / “money lenders” essentially other people’s money. We have a bunch of posts explaining these “creative financing options” & how to get them!! Go check them out and get your free Financial Kit (GIFT 3) while you're at it!
The Rehabbing/ Fixing Process: Rehabbing is the process by which you fix and upgrade a house to bring it up to “retail” value, so you can then sell it for a profit! You don’t need to know anything about fixing up a house to be a pro at flipping. Actually the lesser you know as in “handy DIY do” the better for your business. Because now you are forced to focus on running a “Flipping Business”, managing contractors instead of laying tiles or fixing toilets yourself 😏. A great way to add efficiency to your business is to create systems that save time. For example, use the same materials on every flip. It becomes like an assembly line. Which is a great thing because it saves a ton of time and money and confusion for the contractors. These systems are key for bringing your “Flipping Business”, any business actually, to the next level.
The Selling Process: Time to sell and make a profit! There are many ways to sell a house, from direct to market, to online, to off-market but for ease's sake, your best bet when starting out is to list the house on the open market with a Realtor. This helps you get on the MLS (Multiple Listing Service) where you have a very large set of buyers that exponentially increases your chances of getting a higher price and profit! Again don’t do things on your own, systems will always outperform any “savings” you might think your getting by yourself, Think Like A Pro!
When starting out and building your “Flipping Business” it is more doable if you break down your business departments down into these same 4 areas, it will make learning less overwhelming and help you focus on one area at a time. It also supports you in creating a natural workflow in your business and laying the foundation for scalability. You can start with just looking at the 4 areas as steps you do yourself, then adding team members per area to support grow your business and eventually implementing departments per area. Grow As You Go! 🤗
If all this seems too much to swallow, there is an alternative for mastering mainly the buying process. So you can bite a smaller chunk to chew and skip financing and rehabbing altogether! It’s called “Wholesaling” .
Wholesaling is where you get a house “under contract” and then sell or “assign” the rights to that contract to another investor who then takes care of the financing, rehab and getting an end or “retail” buyer. It’s actually our next post in the Big 4 $elling $trategies $eries, keep reading and keep learning 👌. You can always start with “Wholesaling” to get the “capital gain machine” (cash) going and when you feel confident and competent enough slowly move into flipping.
The Rules Of The Flipping Game
Profits from flipping come from either buying low and selling high (in rising markets), or buying a house that needs repair and fixing it up before reselling it for a profit ("fix and flip").
The first scenario will have you heavily depending on “market appreciation”. The "fix and flip" scenario though will put you in the driver seat, while you “forced appreciation” by adding value.
An investor or flipper will purchase a property at a discount price. The discount may be due to:
Property's condition; the house needs major renovations and/or repairs which the owner either does not want or cannot afford, to do
Motivated seller; the owner(s) needing to sell a property quickly (e.g., relocation, divorce, pending foreclosure).
The "fix and flip" scenario is profitable to investors on the one hand because the average homebuyer lacks the time and funds to repairs and renovations, so they look for a property that is ready to move into. On the other hand, because traditional mortgage lenders, aka Banks, require a home to be habitable with no significant repairs to approve a loan.
How much money can you make flipping?
Fast Flipping, Lipstick Fix, can easily make you revenue/profits in the 4-figure revenue/profits. The strategy here is to have minimal cosmetic repairs & staging, which gives a more polished look than neighboring properties. You are going for volume and speed to make your targets. The speed (<2 months) and lower investments also minimize your risks.
Moderate Fixes can easily make lower 5 figure revenue/profits, $10–$25K range. It is critical to know your market (<$100K) inside out because if there are other flippers going for slightly less and you fixate on a certain amount your volatility (4-6 months) may drop easily. Remember speed is king.
High-end flips, take both longer (>6 months–1 year) and higher investments (high-end finishes, mayor rehabs). You are now looking above the $150,000 market with 6 figure revenue/profits. Lower speeds also imply higher holding costs and higher risks.
The real money is not made by hitting it big with one homerun flip, but in flipping multiple properties that are manageable, with speed and fair steady profits.
What and how to fix to make money!
Many flips go south because someone thinks they can DIY Fix properties on the weekends and save thousands. The truth is you will probably lose money if you aren’t a professional contractor and it will probably cost you way more time than a professional. Remember you are building a business, not a weekend side hustle gone bad.
Get bids from multiple contractors. Try to use contractors that have been referred to you by people you trust and get everything in writing.
Do not pay your contractor a ton of money upfront. If it is a small job you should be able to pay your contractor after the job is done. If it is a large job, you may need to pay your contractor in increments as the job is done. Don’t pay half or all the money upfront. Check up on your contractor often to make sure he knows that you are paying attention.
Guidelines on what to repair in a fixer:
Always make sure the property will qualify for financing; meaning all the major systems work and there are no safety issues. If your prospective buyers can easily get a loan, you are safe to go!
Look at the condition of competing properties; make sure your property is just as nice if you want to sell it for as much as the competition is asking. Go for nicer with staging and slightly lower with pricing and you have your home run.
Don’t overspend on repairs (go for what the neighborhood will support); your buyer will often need financing which requires an appraisal. If your property is more expensive than other properties in the neighborhood then the appraiser will have no comparables to justify your high price. If the appraisal comes in low you may have to lower your price or find new buyers, A Federal Housing Administration (FHA) appraisal usually sticks to the property for 4 months, so go with the flow!
In short, we can naturally say that there are a lot of moving parts to “Making Money Flipping”. You have to really understand the process, the steps and the systems to create a business. Now you have an overall “Big Picture” view and a better idea of how all the pieces fit together.
If you can’t wait to start, download Calc Like A Pro Quickscan for FREE and start scanning the surface for your next flip!
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