I have an extraordinary hatred for puzzles. You know the kind—where you open the box and 1,000 little pieces stare up at you with hatred.
Why? Where do I even start? The corners? Why is this piece purple? Is it the same shade of purple as this piece? Does this piece look “dirty” to you? Luckily, there’s one simple task that makes puzzling so much easier: looking at the box. If you’re like me, you probably prop up the box so you can see the whole picture while you work.
You might be wondering why I’m talking about puzzles in a guide to flipping houses. Here’s why: Flipping houses is like a puzzle. You need to see the whole picture. After-repair value (ARV), staging, hard money lenders, contractors, they’re all pieces to the house-flipping puzzle—very important ones.
But for novice flippers, these little nuggets of information look just like the 1,000 tiny puzzle pieces covering your kitchen table.
I don’t want you to hate flipping houses the way I hate puzzles.
This guide is your box cover—the whole picture explaining what the puzzle actually looks like. Once you’ve absorbed this information, you can start fiddling with the pieces.
Below are 30 steps—one for each day of the month. No, I don’t expect you to flip a house in 30 days (it takes much longer!) but if you study just one of these steps each day for a month, you’ll be an expert by the time the calendar flips.
Step 1: Commit to the flip
Like marriage, the first step in your real estate adventure is commitment. It’s easy to get excited about house flipping or landlording—but can you actually commit to going the distance? House flipping isn’t a hobby. It’s a business that can dramatically your financial future, positively and negatively. Don’t go into this thing willy-nilly.
Decide you are going to do this. You’re 100% committed to learning everything you need to learn to get there. Then—and only then—should you move on to step two.
Steps 2–4: Educate yourself
Don’t dive into the flipping game without doing some background research first. Here’s what you need to know.
2. Educate yourself on flipping houses
Education is a lifelong pursuit—but spend some extra time learning before jumping into a house flip. Don’t pay $50,000 for some kind of guru training camp. But you should take your education seriously and buckle down to learn the basics.
Start with The Book on Flipping Houses written by J. Scott. If you’re planning on flipping houses and haven’t read this book through at least once carefully—and taken notes!—you’re not doing enough. If you’ve already read it, go back and read it again.
Next, start to teach your spouse (or kids, mom, dad, dog, cat, hamster) what you’ve learned. Teaching is the best way to truly internalize knowledge. Don’t just review the surface details. Get deep, so you can truly understand how this stuff all works. You don’t need to know absolutely everything, but get really good at the basics.
One last word of caution: Don’t get caught in this cycle for too long. You’ll never know everything, so dive into the education for a short while, learn all you can, and then move on.
3. Learn the flipping math
Without the right math going into a flip, you’ll never get the right money coming out of it. Understanding the math is the number one most important trait in a successful flip, because the math determines how much you should pay, how much work to put into the property, and how much you expect to get out.
Start with the BiggerPockets House Flipping Calculator. Play with the numbers and you’ll find out how much you’ll really make on a hypothetical flip.
Do the numbers by hand, too, to ensure you understand the math behind the calculators. If you’re struggling with the numbers, ask for help in the Deal Analysis forum here on BiggerPockets. There are thousands of investors there waiting to help.
Don’t move on until you understand the math.
4. Market research
Next, take a look at the market and decide where the best place to flip will be. In some areas, $200,000 for a home would be absurdly cheap. In other places, $200,000 would be absurdly expensive. Every market is different, so you need to have a good handle on the market you plan to flip in. Ask yourself these questions.
- How much are average homes selling for?
- How much are bank REOs selling for?
- How fast are properties selling?
- What areas seem to be selling the fastest?
- What property types, sizes, and layouts seem to be selling the fastest?
Do a thorough job of understanding your local market. Walk through as many open houses as you can and meet with local experts to discuss the state of the local economy.
Then, cycle back to the math and see if flipping makes sense in that area.
Steps 5–6: Find your partners
You can’t flip a house alone. Yes, ambitious investors can do the bulk of the work themselves—but you’ll still need a lender and a real estate agent.
5. Arrange your flip financing
At this point, you’re excited to get started. Don’t put the cart before the horse. First, ask yourself a very basic question: How are you going to pay for this flip?
There are a lot of different strategies you can use to finance your next house flip. Here are a few of the more common methods.
- All cash: If you have the cash in your bank account, you can simply write the check. This is obviously the easiest solution, but impossible for most folks.
- Conventional financing: Some people utilize a normal bank loan to flip houses, but this can be difficult if the house is not in great shape, as most banks won’t lend on unfinished houses.
- Home equity loans: If you have a large amount of equity in your personal home, you may be able to tap into this equity in the form of a home equity loan or line of credit (often called a HELOC). Talk to your credit union or lender to pursue this strategy.
- Hard money loans: A hard money loan is a short-term loan funded by private investors.
You have a lot of different options, but you’ll need to pick one in order to move on. Finalize whatever source you plan on using before shopping for your investment property, so you can quickly jump on it. In today’s hot market, speed is key in getting a great deal.
6. Find a real estate agent
At this point, you understand what makes a good deal good and have financing lined up. You’re ready to rock. However, you don’t need to do it all yourself. There is one team member you definitely need to find: a real estate agent. Why? Because they’re free.
Yep, your seller pays the agent. So why not use one?
Your agent can open doors, write up offers, find comparable sales so you know what properties are really worth, and so much more. Calling the agent who listed the property is a newbie mistake. If you do, you’ll be dealing with the seller’s agent, who has a legal obligation to encourage you to pay the most possible. Do you really want that person helping you? Nope. Find a buyer’s agent.
One caveat here: If you plan to use direct mail to find your first flip—aka sending letters to thousands of individuals, hoping a small percentage will turn into deals—you don’t want an agent. The same applies if you are looking to buy homes FSBO (for sale by owner). Real estate agents are perfect if you plan to buy homes off the multiple listing service (MLS), which is where most homes are listed.
Step 7–10: Find the best deal for you
Before you start seriously searching, it’s good to think critically about what makes a deal right for you. This requires both good analytical skills and some time spent considering what fits in your portfolio—or, if you’re just starting in real estate investing, what you want said portfolio to look like.
7. Define your prospective deal
First, funnel all the possible choices down to specifics. This is when your education and market research come in handy. You want to flip houses that people want to buy—so what kind of homes are they buying, and where? Think about things like:
- What is the most you’ll pay?
- What is the least you’ll pay?
- What is the minimum or maximum number of bedrooms?
Congratulations, that’s enough criteria to start filtering the properties on the market. Sometimes, however, a two-bedroom home could become a three-bedroom, or a one-bath house could become a two-bath, so keep your criteria broad.
Once you’ve made some decisions, let your agent know. They can set you up with automatic emails, which will alert you when suitable properties come on the market.
8. Analyze potential deals
This is an important step in the process, so don’t skip it. It’s time to start doing some deal analysis on real properties.
Investing is a numbers game. Every property has a price that makes it a great deal. Your job is to find that sweet spot.
Let’s say you run the numbers and decide that you could pay $100,000 for a particular house. But it’s listed at $275,000—you can skip that one. However, if it’s been listed at $140,000 for the past four months, maybe the sellers will go down to $100,000. If it’s at $105,000, you probably have an easy deal to put together. (But there may be reasons why the deal’s so easy!)
If you haven’t yet, check out BiggerPockets’ House Flipping Calculator, which will help you quickly plug in numbers to see the potential of any deal.
Before submitting an offer, you need to be extremely confident in your ability to judge a property’s potential. Head over to Zillow or Realtor.com and start pulling numbers for potential properties that look like good options. Do your best to make good assumptions about the rehab costs and other potential expenses. (It’s more important to understand the process of analyzing these deals than to know the exact values right now.) This way, when you get a real potential deal across your desk, you’ll know what to do.
Additionally, get out there and start physically looking at homes. Walk through as many as you can. Ask a lot of questions and learn as much as you can. This will not only help you find the best properties, it will motivate you, too.
Ask for help in the BiggerPockets Deal Analysis Forum if you need some extra assistance.
9. Start driving for dollars
In addition to looking on the MLS, it’s not a bad idea either to get in your car and start driving around, hunting for potential deals.
In the real estate investing industry, we often call this “driving for dollars.” Look for properties that are vacant or need some serious cosmetic help. If you can find the owners through public records, you’ll often find them very willing to sell for a great deal.
10. Find the perfect house
After walking through and analyzing dozens of properties and talking with your agent about your needs, eventually you’ll find the perfect flip. You may find one right away, or it may take months. Don’t worry about how long it takes—focus on finding the best deal possible. You don’t want anxiety to impede your financial future. Be patient and stick to your criteria.
Don’t let emotion take over the deal.
Excitement is inevitable. After all, you’ve put a lot of work into this project and you really want to see everything come together. However, this is no time to toss out everything you’ve learned. Stay calm, stick to your numbers, and get ready for the real excitement to start.
Steps 11–15: Start your deal right
Once you’ve identified a great property for your fix and flip, it’s time to move onto the next step—and often the most anxiety-inducing step. Yep, it’s time to make an offer and get under contract. Here’s how.
11. Make an offer
Typically, in real estate negotiations, the potential buyer will present the seller with a proposal. It includes things like:
- How much the buyer wants to pay
- What financing the buyer will use
- When the deal will close
- Who pays which closing costs
- Important “contingencies” that the deal hinges on, like an inspection
If you found the property through your real estate agent, they’ll help you through this entire process. It’s actually fairly easy. However, if you found the property yourself—such as through word of mouth, driving for dollars, or direct mail—you won’t have the luxury of a real estate agent on your side.
So if this is your first time, you may want to hire an attorney or a real estate agent to look over the paperwork and make sure you aren’t missing out on anything.
12. Deal with contingencies
A “contingency” refers to the parts of a legal offer that are “escape clauses.” In other words, these are things that let you walk away from the deal without losing your earnest money. For example, you might have a contingency that says, “This offer is contingent upon my cat fitting through the cat door”—though I wouldn’t recommend it. Too many contingencies make a seller reluctant to accept your offer, but too few can put you in a difficult place.
So what contingencies should you include? Here are the most common.
- Appraisal contingency: This contingency typically says one of two things. First, if you can’t get an appraisal on the property that is at least as high as the purchase price, you can back out of the deal. Alternatively, you can ask the seller to drop the price—and if they refuse, you can then back out of the deal.
- Inspection contingency: It’s hard to know a property’s true condition by walking through it for a few brief moments. Most buyers want an “inspection contingency” that allows you to hire an inspector to do an in-depth analysis of the condition of the home and (hopefully) uncover any hidden problems.
- Financing contingency: Many real estate contracts include a financing contingency, which means the buyer can back out if they can’t obtain financing. This is the contingency most often waived by real estate investors, because many purchase properties with cash.
Keep in mind that the fewer contingencies you have, the greater chance your offer will be accepted. Many investors choose to avoid contingencies altogether to make their offers stronger. This obviously opens the investor to greater risk, so I only recommend this for experienced investors.
After you submit your offer, it’s time to wait.
Usually, the seller will send a counter offer (via your agent, if you have one) that explains what they want from the transaction. You can choose to accept, reject, or send them a counter offer. But the seller can also simply accept your offer and end negotiations, though this is generally not the case.
During negotiations, it’s vital that you stick to your predetermined numbers. Emotions run high during this phase, and you may be tempted to raise your price, making the numbers unworkable. Don’t do this! Stick with what you know will work—and be willing to lose the deal if you can’t reach an agreement.
In the end, one of two scenarios will occur:
- You come to an agreement (known as mutual acceptance).
- You can’t come to an agreement and you go your separate ways.
If you can’t come to an agreement, the deal may not be lost. I’ve bought numerous rental properties that were originally turned down. I once offered $65,000 on a property, and the offer was rejected. Six months later, however, after numerous price drops, I offered $45,000 and it was accepted! So don’t be afraid to wait it out. Stick to your number and maybe later—whether that’s weeks, months, or years—the seller will be more motivated.
14. Send the earnest money
Once both parties agree on a price and terms, you’ll need to pay the earnest money to make it all official.
Some agents prefer you give this money with the offer, but I try to wait until an offer is accepted before handing my money over to someone I don’t know. This is especially important when you make a lot of offers. Regardless of whether you’re working with a real estate agent or directly with a seller, this money is never held by the seller themselves. This money should be kept by a third party—typically the title company or an attorney who will be closing the deal.
15. Pick a title or escrow company or attorney
Next, the paperwork moves over to either a title/escrow company or an attorney, depending on your state. From this point forward, I’ll probably just refer to title companies, but if you are in a state that uses attorneys, they serve the same function.
The title company is responsible for getting the deal closed. They will check the property for liens or other problems with the title, as well as prepare documents and schedule times for everyone to sign the paperwork.
Typically, if you are working with a real estate agent, your agent will suggest their favorite company—or the seller may ask that you use their favorite. If you are working directly with a seller, don’t be afraid to ask a few agents what company they prefer.
Steps 16–20: Prep for the flip
You’re under contract. Hooray! While you wait for the deal to close, it’s time to get your ducks in a row so you can start work immediately once you have your keys.
16. Get an inspection
Once the house is under contract, hire a professional inspector immediately to look through the property. Unless you are a contractor yourself, this is not a place to cut corners. A qualified, licensed home inspector can tell you a lot about the property you are about to buy—including the things you probably wouldn’t notice yourself, such as the condition of the wiring, plumbing, and roof.
I recommend physically being at the property during the inspection—and asking a lot of questions. The information you learn will serve you for years to come as you pursue flipping houses with more efficiency.
A home inspection typically runs between $400 and $600 for a typical single-family home and higher for multifamily properties. Again, this is no place to skimp.
One final note on the inspection: A home inspector’s job is to find problems, so don’t be scared when you get a 20-page list. I’ve never purchased a property that didn’t have at least 50 things needing fixing. No property is perfect. You’re looking for properties that have no major problems, such as a bad roof or foundation, unless you’re already budgeted to fix that problem up.
You also may not want to fix every single thing in the inspection report. The inspector will usually let you know what’s most important and what’s just a good idea. For example, you’ll probably want to fix a roof leak, but you may not want to fix a bent gutter on the back of the home.
After the inspection, you will have one of three choices:
- Accepting the condition and moving on with the sale
- Rejecting the condition and walking away from the deal
- Renegotiating the deal
If everything looks good, you’ll sign a document letting the sellers know you accept the condition. But what if there are serious, game-changing problems?
I would recommend not pursuing step two without considering step three first. For example, let’s say you discovered that the home needs to be totally re-wired. Don’t immediately run. Instead, ask the seller to either fix the problem or credit you the cost of fixing it after closing. After all, now the seller knows about the problem. Legally, they’ll have to disclose the problem to future buyers—so attempt to salvage the deal if possible.
17. Create the scope of work
Make a detailed list of everything that needs to be completed on the project in order to get it ready to sell.
You could complete this step before the offer is accepted, but I usually only create a “light” scope of work. Why waste time on deals that won’t ever happen? Plus, the inspection will provide a detailed list of problems that you can refer to.
If you don’t plan to do the work yourself, work with a qualified contractor to bid out these tasks. You don’t want to buy the property and suddenly realize your to-do list is much more expensive than anticipated. This is the fastest way to lose a lot of money and fail at your house flipping business.
18. Find great contractors
This step could actually be done at any point beforehand—but now is a great time, if you haven’t already hired a contractor. If work is needed and you don’t plan to DIY, it’s time to find some dependable contractors.
We’ve asked dozens of guests on the BiggerPockets Podcast how they find good contractors and, by and large, this seems to be a difficult task for investors. I recommend approaching it like a business by proactively seeking out the best contractors.
The best way to find a good contractor is via a referral from another real estate investor, house flipper, or property manager. Always get multiple bids from different contractors—but don’t assume that cheapest equals best. In my opinion, there are three (loosely defined) types of contractors.
- Low-end contractors: These contractors have a few tools and will do work for you on the side. Typically, they’re not licensed, bonded, or insured—and you’ll have little recourse if they screw up. Stay away from these guys if at all possible, except maybe for simple jobs like mowing lawns and putting up signs.
- Average contractors: These contractors are licensed, bonded, and insured, but typically work for themselves or for smaller companies. They are accustomed to working with real estate investors and property managers, so their rates are reasonable. I use these contractors for the majority of tasks.
- High-end contractors: These contractors build million-dollar homes and renovate shopping malls. They charge $2,000 to paint a bedroom because they have clients who will pay it. I’d recommend only using these guys sparingly on jobs that require high-quality work, like countertops and fireplaces.
Be sure to get all bids in writing—and with details. If the contractor says they will paint the exterior for $2,500, does that include the doors? Does that include pressure washing? Get down to the nitty-gritty and get it all in writing. It will save everyone stress in the future.
You will likely need several different contractors to do different parts of the job. Be sure to coordinate who will do what, when. Also determine how you will pay the contractor.
19. Finish your due diligence
There are a number of tasks you’ll need to complete during your due diligence period. For example, during this time you will want to:
- Make sure utilities have been paid and there are no outstanding debts.
- Sign various disclosure documents from the title and escrow company.
- Open up a property-specific checking account and order checks.
- Purchase hazard insurance and, if needed, flood insurance.
- Schedule your contractors.
It’s also important to create a schedule for completing the flip. As the person in charge, you must ensure work is getting done quickly—which means planning the flip’s different phases with your contractors to ensure there are no “dead days” where nothing gets done.
20. Close on the property
Finally, all your work is about to pay off. But it’s not the end of the journey—it’s just the beginning!
Your title and escrow company will schedule a time for you to come in and sign paperwork. Depending on your state’s laws and traditions, you may or may not actually sit down with the seller at the closing table. At this time, the money from your lender (or your checking account) will be wired to the title company (or attorney), who in turn is responsible for making sure the correct amount is paid to each party.
Finally, the title company will send the deed to the county to be recorded. Property ownership will officially pass to you!
Steps 21–23: Rehab the property
Congratulations—you are an investment property owner! Now it’s time to get to work.
21. Manage the rehab
Hopefully you organized your rehab schedule during the due diligence period this, so everything should run pretty smoothly. Just kidding: Flipping houses is never easy! But proper prep does make things move along more smoothly. Your contractor should be ready to dive in on day one.
Unless you hire a project manager, your job is to ensure the contractors are doing the work that they’re supposed to when it’s supposed to be done. Contractors are notorious for taking significantly longer than they originally said—and without pressure from you, they’ll take even longer.
22. Manage the financials
You’ll also need to ensure bills are being paid, including the utilities, contractors, and supplies. Keeping a close eye on the bills ensures you stay on budget. But keep in mind that budgeting can be one of the most frustrating parts of house flipping—especially if you’re not prepared.
Go overboard on organization. There may be hundreds of receipts, bids, and documents floating around, but take a few moments every single day to organize them and enter them into a spreadsheet so you can keep track of your spending.
23. Make your final punch list
Once all the contractors finish, I create a final “punch list” of things that they forget.
No matter how good the contractor is, they will miss some small details. It’s your job to go in, create a punch list, and get those things knocked out as quickly as possible. And don’t pay the contractor until this is all done!
Learn more on BiggerPockets:
Steps 24–30: Sell the property
Thanks to your hard work and dedication—and, let’s be honest, money—the in-need-of-rehab property you purchased is now ready to go back on the market. Here’s how to get the most money from your flip.
24. Consider staging
Staging is the practice of placing furniture, wall art, knickknacks, and other objects throughout the home to make it look more lived-in. Although it may seem counterintuitive, most real estate experts agree that staged homes sell faster and for more money.
You can hire professional staging companies to fill your flip with furniture and more. You can also save money by heading to your local furniture rental company—the rent-to-own ones—and having them stage the home for you for several months.
If you have a tight budget, consider just installing cheap curtains and picking up inexpensive house plants. Small changes can do wonders.
25. List the home on the MLS
Finally, the property is finished—and it looks fantastic. It’s time to list the home for sale. Although you could list it “for sale by owner,” most investors list with a real estate agent, who can place it on the MLS for maximum exposure.
You will sign an agreement with a listing agent that spells out things like the sale price, the commission, and how long the listing agreement will last.
Before actually listing the home, your agent will look at comparable properties in the neighborhood that have recently sold and come up with a great listing price. Although you looked at the comps when you started the whole process, the real estate market may have changed. Make sure you reevaluate your pricing strategy to ensure you’re being competitive.
26. Have your agent keep tabs on the property
While the home is on the market, there aren’t a ton of things you personally can do besides maintaining the home and answering your agent’s questions when they come up.
However, your agent can do quite a bit—so make sure they are! Ask for weekly reports (or better yet, have a phone conversation about the progress at least once per week) and make sure your agent is keeping your property a priority.
27. Get an offer (but don’t celebrate yet)
It may feel like time to break out the Champagne, but keep that cork closed.
In my experience, 50% of offers don’t turn into sales. Don’t count your chickens before they hatch.
Instead, look at the offer for what it is: a business proposal. How does it look, financially? Are they offering enough—or is it a low-ball? What about contingencies? Are the buyers pre-approved for a loan? Do they appear to be serious?
Review the offer with a (figurative) magnifying glass and talk about it with your spouse, your agent, and your investing partner.
28. Negotiate a fair price
Chances are you won’t simply accept the offer as presented—though there is no rule that says you can’t, if it’s a great offer. Instead, you’ll probably want to “counter” the offer with one suits your strategy better. Most real estate buyers and sellers expect a little back-and-forth, so don’t be afraid to counter with a slightly higher number. Most buyers won’t run for the hills.
The paperwork may go back and forth a few times, and in the end you’ll either have a signed deal, or the agreement will fail and you’ll both go your own ways. Hopefully, however, you find success and can move on.
29. Allow a due diligence period
Just as you did your due diligence, now your buyer will do the same. They’ll probably hire a professional inspector to walk through the property and find every problem they can.
I’ll offer the same advice here as I did earlier: An inspector’s job is to find every problem. Even after a complete rehab, the buyer will likely get back several pages of problems. The buyer may ask you to fix a lot of those problems, and the choice is yours as to whether or not you will. If you don’t, they may walk away from the deal. Consider each repair carefully and do what you can to keep the deal together.
During this process, the buyer will also be finalizing their financing and doing the necessary steps needed to buy the home.
You will likely communicate several times with the title company or attorney concerning topics like loan payoff amounts. Be as prompt as possible in returning phone calls to ensure the sale goes as smoothly as possible.
30. Close on the sale, pay taxes, and move on
On the day of closing—or several days before—you will sit down at a big table and sign the closing documents at the title company. Inspect this paperwork carefully for mistakes. If you find any errors, immediately address them with the closing agent.
The title company will handle all the payments, accepting the incoming funds from the buyer and paying off the loans that you have on the property. They’ll give you a cashier’s check (or a bank wire) for the difference.
One final note: These funds are not all yours to keep. Instead, any profit needs to be shared with the government when tax time comes. House flipping is generally considered “active” income and therefore taxed at the highest levels. However, good tax planning can help avoid a good portion of the taxes due—so be sure to seek out a qualified tax professional before selling your flip.
Finally, take your profit and sink it into the next flip. Or, use it as cash infusion to buy rental properties or real estate notes. House flipping can be a lot of fun, but it is active income, so continue to build up your passive income at the same time to create real wealth.
There you have it: 30 steps for completing the perfect house flip!
If you’re serious about flipping houses, don’t rely on this blog post alone. Dive into the educational world of house flipping by checking out The Book on Flipping Houses by J. Scott.