House flipping can be a good way to earn a living. In fact, in some markets, you can even double your investment (I'm looking at you, Pittsburgh and Cleveland!).
But like with anything, there's a learning curve to this business -- and you won't get to those sky-high profits right away.
Want to try your hand at flipping properties? These house flipping tips will help you start off on the right foot:
Prepping to start your house flipping business
1. Understand the flipping houses process
Before getting started, you need to understand the bigger picture of house flipping. For one, this isn't a get-rich-quick business. If you want to flip houses, it takes time, effort, and some pretty hefty resources, so be prepared for that on day one.
At the outset, you'll spend most of your time finding the right property. Depending on your market, this could take weeks or even months. Then you'll do your due diligence, apply for your financing (unless you're paying cash), and take ownership of the house.
In phase two, you'll work on prepping and renovating the house. This is what most of those fix-and-flip TV shows focus on, but often, it's one of the shortest portions of the process. As long as you have your team lined up and your project plans ready to go, most real estate investors can have the flipping phase done in a few weeks flat.
Finally, you'll stage, list, market, and try to sell the house. Just like on the buying end, this could take a while depending on your market. Your willingness to negotiate will also play a factor, so if you're going to play hardball, expect a little extra time on the market.
2. Study your market
You need to have a deep understanding of your local real estate market when you flip a house. Where are the up-and-coming areas? Is it a buyer's or seller's market? What are local buyers looking for in terms of features and amenities?
You should also have a good handle on local home prices, closing costs and property values, so you can accurately determine how much money to pay for a house as well as what its future market price might be after the flip.
Working with a local agent can help you get a good handle on the area's real estate market, while local sales comps are a good resource for understanding home values. While it's more money added to the flipping process, you might be grateful for the extra help. You might also think about going to a few open houses and scouring local real estate listings to get a feel for what's currently out there and what you're up against.
3. Align yourself with the right help
Home flipping is rarely a solo business. Unless you're a pro at sales, real estate, construction work, carpentry, accounting, building code, and a whole slew of other skills, you'll probably need to bring in some help along the way -- and that's OK.
Just spend some time upfront honing your team. Find a real estate agent (one who's experienced in investing and/or flipping), an architect, a contractor, a home inspector, and a CPA, and start narrowing down your lender options, too. The more organized and ready your team is from the get-go, the more smoothly your flip will go on the whole.
4. Know your budget -- and add a buffer
When flipping a house, it's important to know what resources you're working with long before you begin searching for a house. If you're paying cash, know your all-in budget as well as how much you can afford to put toward the purchase price and renovations separately. If you're financing the purchase, you might want to go ahead and get pre-approved for your loan. This will give you an idea of what loan amount you're working with. It could be useful in negotiations, too, as preapproval letters can give sellers more confidence in your offer.
And don't forget to add in a buffer. You never know what unexpected expenses might crop up along the way. Adding in a little extra cushion can keep you from eating into those profit margins when a curveball gets thrown your way.
5. Prep your credit
In the event you're financing your purchase (or even just the renovations), you'll need to get your credit in tip-top shape first. Not only will your credit impact your ability to qualify for that financing in the first place, but it will also influence the interest rate you'll get and how much you'll pay to borrow the loan over time.
Additionally, money lenders tend to be more stringent with investors than they are traditional homebuyers, so you can expect to be held to a pretty high standard when applying for your loan. Make the process easier by paying down some debts, keeping your credit utilization low, and staying up to date on all your payments.