House Flipping: Beginner Frequently Asked Questions

House flipping as a beginner can be a daunting prospect. Before you commit to buying your first rehab property, you’ll likely have all sorts of questions about the process, the costs involved, and the potential risks. Here are answers to some of the most frequent questions we get from house flipping beginners:

Do I really need to be able to pay cash to get an investment property?

There’s no hard and fast rule, but the way the house flipping market works today, you’ll have a hard time competing if you’re not able to make cash offers on the homes you want to flip. There are simply too many flippers out there with financing ready to go, so you need to be just as prepared.

Where can I get financing for my flip?

You have options. You can try to go with a bank loan, but most banks are resistant to participating in house flipping projects. Joint ventures are a good way to go. With that route, you find someone to split the cost and the work with you. Or you can turn to a private money lender for house flipping loans. Lenders set up specifically for house flipping can get you cash quickly and usually at a reasonable rate. The more experienced you get, the better rates you’ll be able to obtain from private lenders. Just make sure that your lender is interested in establishing a mutually beneficial relationship. If they only seem interested in one-off deals, that’s probably a sign that you should walk away.

How much of my own money should I expect to invest?

A good rule of thumb is that 20-30% of the purchase price should come out of your own pocket. If you’re spending much more than that, you’re likely taking on too much risk. If you’re spending much less, you might be dealing with a predatory lender.

How do I know whether a property is a good investment?

This is the hardest part of house flipping. It takes research, careful consideration, and good instincts. If you don’t know what exact costs go into the house flipping process, you may want to take a course, buy a book, or – best yet – talk to an experienced house flipper or lender who can walk you through the necessary calculations.

A good rule of thumb when considering properties is the 70% Rule. It’s really more of a guideline, but the 70% Rule states that the initial purchase price should be no more than 70% of the expected after repair value (ARV) minus the expected rehab costs. So if you expect a home to be worth $200,000 when you sell it, and you expect the repairs to cost $20,000, you shouldn’t pay more than $120,000 for the property up front (200K x .70 – 20K).

When using this rule, remember to be conservative in all of your expected values. Being too optimistic is one of the biggest mistakes a new house flipper can make.

What am I overlooking?

Probably a lot. When researching the costs of a house flip, you need to think about closing costs, loan points, taxes, contractor delays, accounting fees, listing costs, and much, much more.

Again, if you don’t have a lot of experience as a realtor or contractor, it’s a good idea to educate yourself thoroughly on the house flipping process before jumping in. In this business, you need to be overly prepared so that when the time comes to act, you’re able to move with lightning speed and precision.