What Do I Need to Start Flipping Houses?
Flipping houses can be a very lucrative business, provided those involved understand both the risks and costs involved. For those just looking to get started flipping houses, there are bound to be many surprises along the way. There’s also going to be a lot to learn, such as where to get funding, how to pick a house and how best to complete the necessary repairs and renovations.
Essentially, a prospective house flipper needs three things to start flipping houses successfully: capital, a strong knowledge of the marketplace and the patience and fortitude to not be dissuaded by unexpected setbacks.
Knowledge of the real estate market
While a real estate investor doesn’t actually need any certification to start flipping houses, many professional house flippers have attained a real estate license. Doing so not only grants them more insight into the current state of the market, but also enables them to better find houses that would be worthy as a flip. Additionally, as a licensed real estate agent, the house flipper can also sell the home themselves and avoid having to pay a commission to a seller’s agent.
So, becoming a licensed real estate agent certainly has its advantages, but it isn’t wholly necessary. There are still ways to learn about the marketplace without getting a real estate license. One of the best ways is by working with a professional real estate agent. They can perform a comparative market analysis to see the conditions of the local market and offer advice on particular properties.
Knowing the market conditions is especially important because they can vary greatly in different areas. One area may experience a boom in housing, while other areas remain stagnant. Understanding the different factors that affect the value of a particular home is also a necessary component of successful house flipping. Location, lot size, age of the property, square footage and other attributes play a big role in the ROI.
Real estate investing requires capital, and lots of it. Thankfully, there are several ways to secure funding for a house flipping project. From traditional mortgages to hard money loans to private lenders and more, finding a lender isn’t always that big of a problem. But new house flippers should expect to pay higher interest rates for most loans, since house flipping is generally seen as a riskier prospect.
Additionally, it’s important to budget and estimate costs properly. In addition to the purchase price of the home and estimated renovation and repair expenses, there are several other costs associated with flipping houses. A real estate investor will need to account for closing costs, insurance, utility costs, potential HOA fees, legal fees and unexpected costs that may arise during the project.
Before seeking any sort of funding, a novice real estate investor should first familiarize himself or herself with the different types of loans available and the pros and cons of each. Then, they can make an informed decision on the type of loan that works best for their needs.
Patience and skills
Not every house flip will be the same. Some can be completed quickly and with ease and minimal expense. Others will drag on for months and require additional, unforeseen repairs. With patience and experience, a real estate investor can get very good at properly judging the value of a house and determining their expected profit. And, if a real estate investor also possesses related skills such as construction or interior design, it will better equip them to make a sound decision.
It’s okay if someone doesn’t possess these skills, as long as they can assemble a team of individuals that do. By working with experienced professionals in real estate and construction, a house flipper will gain an advantage and improve their chances of successfully making a strong profit.
But it’s also important to remember that even with ample experience or an experienced team at their side, a house flipper can still face setbacks and lose money. Staying patient through the process and learning from their mistakes is what makes most professional house flippers successful, provided they also have a means of securing the capital to carry on with real estate investing.
Flipping houses is time-consuming, expensive and will not likely lead to overnight success. It has a steep learning curve in the beginning, but with the aid and advice of other professionals in the marketplace, beginner real estate investors can soon find themselves running a very lucrative business.
Securing the right type of loan, and the knowledge to choose the right houses in the right areas will also make a big difference. That isn’t to say every house flip will be profitable — even professional house flippers face losses now and then. But they have also learned how to minimize their losses with market research and careful planning.