House flipping is awesome, right?
I mean – it’s exciting, rewarding, liberating, and it can make a lot of money.
However, it also can be dangerous if you don’t follow certain steps or if you do those steps out of order. If you’ve ever watched one of those “flipping shows” – you know exactly what I’m talking about – people who try to flip a house and quickly get over their head, or contractors who walk all over a newly-refinished hardwood floor because it wasn’t managed properly.
In the past several years, I’ve learned a lot of lessons about house flipping, and I believe these lessons can be boiled down into five steps. Obviously, flipping houses is much, much more intricate than I can cover in a simple blog post (or video) but I hope this post can serve as a “primer” to help you know the right questions to ask.
If you are looking for a more comprehensive look at flipping houses, definitely check out The Book on Flipping Houses and The Book on Estimating Rehab Costs, written by J Scott and released by BiggerPockets a couple months ago. These books are the expanded version of what I briefly discuss in the video below.
Check out the video I made which may help you figure out how to get started flipping houses. Below that is an expansion of that video, in case you are interested in knowing more! Be sure to let me know what you think in the comments below!
How to Flip Houses Transcript (Sorta)
Alright, so you want to start flipping houses. I don’t blame you. Flipping houses can be fun, exciting, inspirational … and very dangerous if you don’t do it right.
I don’t want you to crash and burn in your real estate flipping, so let me show you the 5 steps you need to use when flipping a house.
Step Number One: Plan
- What kind of house are you going to flip?
- Where are you going to flip at?
- How are you going to fund this?
These are all important questions you need to answer BEFORE you start house shopping.
You see, you need to determine where people in your community are buying houses and start there. Three Bedrooms? Big garage? Basements? What are people actually buying? And where are they buying?
Until you can answer these questions and start formulating your plan, don’t jump into a house flip.
Alright Step #2 – Get your financing figured out
How are you going to pay for this flip? Most banks don’t like funding flips, so if you don’t have the cash, you may need to get creative.
One of the most common methods used to fund a flip is through a hard money lender. If you are planning on using hard money lenders, you better start talking with some right now. If you don’t know any hard money lenders, you can find one for free in your state by visiting the BiggerPockets Hard Money Lender Directory.
Or you can watch this awesome video I made on How to Find a Hard Money Lender by Clicking this video link.
Okay, let’s move on to step three : Buy Smart.
When it comes time to buy a property, not any old property is going to cut it. You’ve got to buy smart. An easy tool to use is called the 70% rule, and it goes basically like this:
- Figure out how much the house will easily sell for once it’s completely fixed up.
- Multiply that number by 70%.
- Subtract out your repairs.
- And badabing badaboom you’ve got an estimate on the price you can pay.
Now keep in mind, this is just a rule of thumb. Take some time and actually work out the numbers and make sure it works… and be conservative in your estimates. If you think it will ultimately sell for $150 to $170,000 – Estimate $140,000. Then double your repair estimate and double your timeline.
Trust me – the key to success in house flipping is being conservative. If you aren’t real comfortable knowing how much it costs to fix up a property, make sure you pick up a copy of the BiggerPockets “Book on Estimating Rehab Cost” which comes free when you get “ BiggerPockets Presents the Book on Flipping Houses” If you want to get a copy and start reading it right now, just click the book right here.
Alright moving on – it’s time for step four: Remodeling the home.
If you plan on doing all the work yourself – and I don’t recommend it – you better get started. But you are probably going to need to hire some contractors. Definitely make sure those contractors are licensed, bonded, and insured.
And you’ve got to manage your flip like a business and not a hobby. So have rules, systems, schedules, and budgets to keep everything running smoothly.
Finally, step five is to sell that flip.
Make sure you price your house to sell quickly. In other words: don’t be greedy. You want that house to sell as fast as possible. You may also want to consider “staging” your house – which means decorating it with furniture, paintings, flowers, rugs, nick nacks, and other things that make the house look “oh so cute!”
So hopefully, if you had a great plan, were conservative in your numbers, managed your flip effectively, and sold it quickly – you’ve now made a nice sizeable profit that you can roll into the next flip.
If you guys enjoyed the video above, I really hope you’ll help me out and do three things:
1.) click the “thumbs up sign” on the YouTube player above to tell the Google “gods” that you liked it.
2.) Subscribe to this channel by going to the channel and clicking “Subscribe,”
3.) and send me a colleague request over on BiggerPockets.com – the free real estate investing social network.
Oh – and definitely share this page and the video above on your Facebook wall! You probably have family and friends who are interested in flipping houses – so maybe this video will help them learn too (and maybe start a conversation between you and them that could lead to a future partnership!)
Thanks and happy flipping!
(P.S. Don’t forget to leave me a comment below! I love comments if you can’t tell!)
Photo: Johan Larsson