Important Factors to Consider before Flipping a Home

Property values are incredibly high at the moment, and it seems like they are just going to keep going up. The good times can’t last forever, of course, but that’s not deterring many novice house flippers from getting into the rehab market for the first time.

If you’re considering investing in your first flip, there are a number of things that you need to think about first. House flipping is a great way to make a lot of money, but it also has a lot of risks. It isn’t a profession that you can simply jump into and expect to succeed at.

So what should you consider before you pull the trigger on your first rehab property? Here are some of the biggest questions you’ll need to answer:

Do I have the capital to get started?

Contrary to popular belief, you can’t really get started as a house flipper with no capital of your own. You should expect to pay 20-25% of the purchase price out of your own pocket. This is what reputable lenders who offer rehab loans will expect from you to show that you’re serious about the investment and have a vested stake in the success of the flip.

If you’re investing somewhere like Ohio or Mississippi, 20-25% of a rehab purchase could be $15,000 to $20,000. If you’re investing in California, you might need more like $100,000 to get started. That’s no small chunk of change. Wherever you’re looking to invest, make sure that the money you’re investing is money that you can afford to part with. House flipping funding will help make your first flip easier and less risky, but you need to recognize the risks inherent in this type of investment.

Do I have the time to flip a house?

If you still have a day job, you’re going to have a lot of trouble finishing your flip in a short enough time to turn a profit. The longer you hold onto a house, the less money you’ll make. Some of the most experienced flippers resell the homes they buy in a matter of two weeks. Surrounding yourself with a team that you trust can help substantially, but you still need to be able to take calls, visit the site, and deal with emergencies at a moment’s notice. If you have a full-time career, you may need to consider leaving that career in order to have the greatest success as a house flipper.

Is this the best type of investment for me?

The best house flippers make gross returns in excess of 30% on their rehab properties. But that kind of success isn’t a guarantee. If you don’t have the necessary rehab funding to get started, aren’t sure you’d enjoy construction, or think the pressure might be more stress than it’s worth, you may want to consider other types of property investment.

For example, a buy and hold investment strategy lets you collect monthly income from renters while you also watch the value of your property go up over the course of a few years. Being a landlord also has great tax benefits, and you can hire out the management of your property, making buy and hold a great option for people who are otherwise employed.

Is now the right time to invest?

House flippers know how to sniff out a good deal. You need to be able to find properties that are undervalued to get started, and that can be quite difficult in the current marketplace. Smart strategies --like direct mailers and professional websites -- require upfront investment.

If you can answer “yes” to all of these questions, congratulations! You just might have what it takes to succeed as a house flipper. Keep reading (Bigger Pockets is an amazing resource!), talk to experienced flippers, and research reputable lenders, then find your property!