11 Expert Tips for Flipping Success, From Beginning to End

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I’ve flipped a lot of houses. My practice is to live in the home while I am flipping, to avoid capital gains taxes when I go to sell. I have learned a lot about construction techniques and house flipping in the last 20 years.

It seems that once you know how to do something and have been doing it for years, you sort of forget all the steps that go into it – the beginning processes. I went to a meet up recently and talked about rental properties and screening procedures with someone who is just getting started. That somehow sparked the memory of my first flip, which got me thinking about the whole flipping process.

We’ve all seen those “reality” shows on TV, where they showcase a house flipper who makes a ton of mistakes, yet somehow still manages to turn a profit. It makes for nice TV, but it certainly isn’t part of any reality I’ve ever experienced.

I see so many people introducing themselves in the Forums, asking about flipping or telling their story of how they completed their flip, only to make $200 or even lose money when they finally sold the property. Unless you’re losing $50,000, you have still received a pretty thorough flipping education for less than the price of a bus tour from a real estate guru. I know that isn’t going to make you feel better — it is absolutely soul-crushing to go through a rehab with its time, stress and money, only to discover you paid for the pleasure of experiencing all that.

So here is how I did it and how I will do it again, once I am able to find my next flip house.

Related: 4 Expert Tricks for Finding Flip Deals in a Tight Market

Find the Right House

Congratulations on deciding on flipping houses. Now you just have to find one. This is actually one of the most difficult steps because not only do you have to find a house that needs revamping, you also have to find one that can be purchased at the right price. And that has repairs you (and your contractor) feel comfortable doing. I’ve been flipping houses for a long time, but still recently walked away from a home with weird mold issues.

If this is your first time rehabbing a house, it’s better to either partner with someone who has a lot of experience or start off with a home that doesn’t need a ton of work.

Be sure you know what you are getting yourself into. Have a thorough home inspection and be there with the home inspector so he can point things out. He won’t be able to find everything (you can’t see through drywall or flooring), but you can ask questions and start to get a feel for the general condition of the house before you buy it. Let the inspector know what you plan to do with the house. Investor inspections can be very different than owner inspections.

A great time to buy is in the late fall or winter — there isn’t as much buyer competition later in the year, and sellers who have their house on the market at the time may be resigned to selling it lower because they have to get it sold. Spring is the prime selling season, and if you can get it completed in time, you can capitalize on when the most buyers will be looking.

Long term flips are great for avoiding capital gains taxes, but they aren’t without risk. I purchased a house in late 2006 to live in and flip… remember what happened in 2008? The market completely changed during my flip, and my many hundreds of thousands of dollars in potential profit were swallowed up by the poor economy. There is a lot to be said for getting in and out quickly.

flip-sucess

Understand How to Use the 70% Rule

If you have spent any amount of time on the Forums, you have seen the 70% Rule bandied about. And while some flippers swear by this rule, it is a rule of thumb more than a hard and fast rule. It basically states that you should pay no more than 70% of the ARV (After Repair Value) minus the cost of repairs. A $300,000 ARV * .7 = $210,000. With $50,000 in repairs, you should make an offer of $160,000.

This is all fine and good in a normal market, but our current atmosphere is skewed toward sellers, which means they don’t have to take your ultra-low offer. In fact, you will be competing with buyers who can pay a whole lot more than $160,000 because they aren’t trying to make a profit when they sell it in 6 months. They want to live in it and will offer much closer to that $300,000 than you can ever consider.

I have never followed the 70% rule, and I have still made money every single time. I’m not saying you need to throw that rule out the window, but take it with a grain of salt. The lower the price of the property, the closer you have to stick to that rule if you want to make money.

Don’t fall in love with a house and bid too much for it. There will be another house. Always. You make your money when you buy.

Properly Estimate Costs

Here is where things can go sideways really quickly. If you have never been inside a Home Depot, you probably don’t know how much materials cost. And if you don’t know how much the materials will cost, you are going to underestimate. When you make a math mistake in flipping, it never turns out to be in your favor. Murphy’s Law rules the world of flipping houses.

While you are looking for that perfect house flipping candidate, browse the aisles of Home Depot. Look at all the options in the flooring department and you will see that it varies considerably. I have seen tile for as little as $.78/sq ft. I have also seen tile cost as much as $60/sq ft. For a 10 x 10 floor, you are looking at $78 vs. $6,000. That’s a HUGE difference. And that is just one rather small aspect of the job. Imagine if you budgeted everything at the low end, and then chose everything from the high end? Your budget is blown, and your profits are gone. And we’ve only talked about flooring. Look at everything you think you will be making changes to. Cabinets have a huge variance in price from RTA (Ready To Assemble) to Off the Shelf to Custom. Bathroom vanities, mirrors, even paint has low, medium and high quality choices.

Are you building walls? Make sure to account for all the materials involved. A 2 x 4 stud only runs about $2.50, but you can’t build a wall with just one — they go in every 16″. Plus you need boards for the top and bottom. Nails, too. Are you putting a door or window in that wall? You’ll need a header. Those boards cost more.

If you are using a contractor, they should know these things, and if they don’t, this is a good way to weed them out. They should account for all the materials they will need when they write up your bid, so make sure you know what you want them to do before you make your budget.

Be cautious of hourly contractors. It may seem great on the surface, but those arrangements can backfire. I paid an hour contractor way too much money for a shoddy job once. Now I get bids for the entire job.

Related: Flipping Houses: 101 Awesome Quick Tips for Success

Account for Time

Here is another place you can lose huge. If you think it’s only going to take you the two months the contractor quoted you to flip that house, think again. I have never had a contractor give me a time quote that was accurate. Since I live in my flips to avoid capital gains taxes, I have to be there for two years. An extra month on the timeline is annoying, but it isn’t a huge deal. My mortgage costs are the same if I am working on the house or if it’s finished.

But if you’re flipping a house with a budget of 3 months of holding costs and the flip turns into 6 months of holding costs, that can blow through a large chunk of your profits.

One way to avoid this is to find a quality contractor. Good luck. Ask at your local REIA meet ups for recommendations, or check out the new BiggerPockets Local Real Estate Networking & Recommendations Forum, which is divided into all 50 states, then sub-divided into the largest cities in each state. You should be able to find a sub-forum close to you.

Finding a quality contractor doesn’t guarantee they won’t run into problems and extend the timeline; some things are unavoidable. But a quality contractor is more likely to keep you in the loop.

Build some extra time into your budget. If you don’t need it, that’s just more money in your pocket. But trust me, you’ll need it.

house-flipping

Stick to Your Budget

It isn’t wrong to want the top-quality finishes in your house, but if the neighborhood doesn’t support it, you will be over-building your property and you won’t make the money back. The whole reason you are flipping a house is to make some money, right?

Once you have a handle on what needs to be rehabbed, ask your real estate agent to take you through some of the other houses in the neighborhood to get a feel for what is being offered. Most likely these houses will have sold by the time yours comes on the market, but you can start to see what is expected in the area. You don’t want to budget for laminate countertops when everyone else is offering granite. By the same token, you don’t want to put in granite if laminate will do just fine.

Now that you know what needs to be repaired, and what the competition is offering, you can make your budget. At the very least, you want to upgrade your home to be on par with the area, but to make your home stand out – and sell as quick as possible – you want to go just above the norm.

If you are new to rehabbing, missed items will kill your budget. Lucky for you, J. Scott took his experience and wrote a book called The Book on Estimating Rehab Costs. This book details more than 150 of the most common home improvements and helps you determine what contractors to use for what projects, as well as advice on how to tackle those big problems like mold and termites. (Bonus, if you buy The Book on Flipping Houses, you get The Book on Estimating Rehab Costs for free.)

When your budget is done, double check that you have accounted for all repairs and upgrades, then add 10% for overruns.

Quality Shines Through

Whether you are doing all the work yourself, hiring it all out, or creating a hybrid of the two, you want to make sure the work being performed is high quality. “Good enough” isn’t really good enough. You are performing work in order to build your business. Your reputation is everything.

If you are outsourcing the work, get recommendations from people you know, rather than finding someone and asking them for references. Better yet, visit the property where the work was performed to see if it looks great. Best possible scenario, visit the current job site to see his work firsthand. If it doesn’t look good, find another contractor.

Don’t be Afraid to Fire Bad Workers

My first time hiring a job out, I let the contractor finish the job, rather than stopping all work and finding someone else. That cost me $32,000 when I had to hire someone else to come in and fix the problem, plus replace the windows and doors that were installed incorrectly. Learn from my mistake. If they aren’t doing a good job, meet with them and explain what you want them to be doing. If they still do a bad job, let them go. Don’t throw good money after bad.

Make it Shine

Once you have completed the work on the property, you aren’t quite done. Your next task is to make it stand out. Your property should be sparkling clean before you put it on the market, including windows, baseboards and everything else. If you replaced the cabinets, make sure they are vacuumed out. Open the windows and let the paint smell evaporate. If your market has slowed down a bit, stage the house — especially those odd spaces that don’t have an apparent purpose — to give your buyers an idea of what they can do with the home.

Related: 6 Criteria For Finding Profitable Houses to Flip

Take Excellent Pictures

According to a Realtor.org report, 43% of today’s buyers start their search online and 92% of them use the internet at some point in their search. While nothing can take the place of being in the home, if your pictures don’t look amazing online, buyers will click off your house and move on to the next one. Take pictures at different times of day and night. Some of my best images were taken at night.

flip-house

Price it Right

If you stayed on budget, you should be able to price it right at or slightly below market value. Your most valuable time on the market is the first two weeks it’s listed. After those weeks are up, your listing starts to become stale. It is tempting to price it high, with the idea that you have room to negotiate. But this can actually work against you, costing you market time and end up with a lower selling price.

Another strategy is to price it ultra low and let a bidding war determine the price. I think this is a dishonest tactic. You should list it for a price you would be willing to accept.

Start Looking for Your Next House

Once you’ve finished this flip, it’s time to do it all over again. Start back at square one, looking for a house. Lather, rinse, repeat.

Have you successfully (or even unsuccessfully) flipped a house? What did you learn from your experience?

Be sure to leave a comment below.

About Author

Mindy Jensen

Mindy has flipped numerous homes in the past 10 years, one at a time and doing much of the work with her husband. She lives in Longmont, CO, and is always looking for an ugly duckling to turn into a swan.

44 Comments

  1. David Roberts

    Mindy i don’t think every article that comes through is a good one. But i loved this one. Yout admitted your mistakes and bad timing. I like hearing the dark side of things as week as the bright side. Makes it easier to relate.

    Costs pile up fast! I am preparing to list my latest rental and went to home depot for the washer and dryer hookup materials. 123 bucks! For washer dryer hookups and a 4 prong range plug, and a cheap programmable thermostat.
    Nothing is cheap!

  2. Nicole Pettis

    Love the article! Thanks Mindy.

    However, the one thing I think we should address is setting up the draw schedule with the contractor. To ensure things are getting done, expectations are being met and there is personal accountability.

    The reason I bring that up is because I’m in the middle of a flip right now and I just let my original contractor go. He started out as my partner, so I didn’t feel we needed a draw schedule. We were suppose to grow the business together, I managed the money he managed the crew. He has around 20 years experience, I checked his references and I even drove around with him to see him work. He checked out.

    When the project started he did a great job and they were rocking and rolling. Then the past few weeks things started to slow down. Excuses started and then this week him and his crew only showed up for 1.5 days. We are technically 2 weeks away from the deadline and I couldn’t take any more chances. So I let him go. It was hard, because I thought he wanted to build this business with me, but apparently not.

    As the experts say gotta be slow to hire and fast to fire.

    • Mindy Jensen

      Andrew Syrios just wrote a great article about how to fire someone. (https://www.biggerpockets.com/renewsblog/2015/08/12/9-tips-fire-employee/)

      I have hired four and fired one contractors. Should have fired two. Sigh. My draw schedules have always been dictated by the contractor. This should be laid out, and make sense. $X after demolition. $X after framing inspection complete, etc. Draws should be tied into inspection completion as much as possible. I certainly don’t want to pay the roofer before we pass that inspection.

      • Nicole Pettis

        Yes! I read that one as well. I think my biggest problem was I questioning myself if I had unrealistic expectations. I’m very driven & I push people, sometimes too hard. So I’ve learned to take a step back & I thought maybe this was one of those times.

        Then I spent the weekend in there painting because he kept telling me we might go over budget. So I put in some sweat equity and as I was working I realized I got more done in 2 days than his crew had in 3 weeks. So I knew right then & there he was not being honest. And that’s one thing I don’t tolerate, being unethical, so I knew what I needed to do.

        It’s not easy, but it’s a business & you have to treat it as such.

  3. Kenneth Picha

    Great article. I would point out that I made a mistake with an hourly contractor. I had to fire him in the end because he was consistently stretching it out. I still was ahead of the game even though I fired him but they are out there. Excellent points on making sure the contractor knows the numbers as well; I would also add to work something out so they don’t get paid an advance. To many people have lost money and lots of it because the contractor took them.

  4. John Thedford

    I just saw a guy lose well over 50K. He went into the deal with dollar signs in his eyes. It took him 1.5 years to sell. His carrying costs were huge: one HML for 58K (he borrowed from me but pledged a different free and clear property) and a 1st on the flip for 250K. He paid 330K. Fixed it up. Hired an agent and advertised it over 400K. Sat and sat and sat. Finally took 374K. Paid the listing brokerage a commission. Had all his costs of getting it sale ready, taxes, insurance, etc. He paid way too much for the property, purchased in an area that doesn’t have a fast turnover, etc. Very BAD deal. Not enough research, enough planning, and purchased the wrong property in the wrong location. I assume he didn’t have a plan B and plan A failed. Bad deals like this happen every day….but they do because SOMEONE bought into it. Caveat emptor.

    • Mindy Jensen

      I wonder how hot the market was when he bought the property? You make your money when you buy, and falling in love with a house or getting into a bidding war never ends well for the investor.
      I haven’t purchased a property in two years, because the market is just too hot right now. It will settle down again, it always does.
      I think caution – especially in the early years – is your best friend. I would much rather be sitting on my money than watching it slip through my fingers in a bad deal.

  5. Rick Santasiere

    Great article. I wish I could flip every two years. My wife and 3 kids, just wouldn’t be too happy!! I enjoy the thought process of avoiding capital gains, and thought your overall article highlighted some great areas for a first time flipper/investor. Nice article, and thank you so much for sharing your knowledge and experience! Rick S

  6. Scott L.

    This is a really great article, thanks Mindy. One so rarely hears people talk about the problems in any depth, so that it’s hard to get a solid understanding of potential downsides. Your thoughts help a lot. Implied by what your saying is to visit the property and make your own ‘inspection’ – eyes on the ground are key. – Scott

    • Mindy Jensen

      I never list a house before it is finished. I start looking for a new property when the current one is finished and I am ready to move. I have sold a property without having another one to move into twice, and both times I found a short-term rental to live in until I located the next house.
      It really depends on your financial situation. If you can afford two mortgages, I would start looking as soon as you can. If not, keep an eye out for properties and write offers contingent on selling your house or sell the house first and rent until you find the next place to buy.

  7. Schelley Stamps

    Good timing to read this article, thanks! Im preparing as we speak for my first true buy/fix/sell home Im closing on in about 10 days! Ive done others as keepers for rentals, but this one I want to resell. I did the 70% rule just for the heck of it ($100,000 ARV x .7= $70000-25000 repairs = $45,000 offer, but I got it for $38,000…yaaaay! If all goes well hopefully I will make $30-$40k…I hope! Its something Ive been wanting to do for awhile, and hope it works out well & I can keep the momentum going and do @ least 3 a year!!

  8. Great article. I’m on my 29 th flip this year but I still struggle with estimating costs. Will take your ideas to heart and make some changes. Leaving to much profit on the table especially with outside contractors keeping them on the job. Have had great results but could do much better.

    • Mindy Jensen

      I walked through a home recently that had been sitting on the market during the hottest time of the year in the hottest selling season my town has ever seen. It looked nice from the pictures, but once I got inside, I knew right away why it hadn’t sold. In addition to an odd layout, which isn’t a deal-breaker in my town due to the market, the workmanship was the shoddiest I have ever seen. 8 ft walls with a seam in the middle of the trim. Flooring that didn’t quite reach the wall. Wooden decorative trellis that was not level – visibly not level. A hot mess. Took forever to sell, sold for a pittance, and that trellis is now falling off the house.

  9. Nancy Fortenberry

    This is a great article. Thanks for all the quality info! ? I will purchase the books.
    Concerning TV shows…they are for entertainment and I treat them as such. Luckily, I was born with a fair amount of common sense and I’m always pointing out faults in these shows. Still, I’ve learned some things faults not withstanding. My DH and I have only rented, but are moving to an area with flip potential and great rent potential too. College town with draws for visitors. We are excited, yet cautious. We plan to get to know the area well before we start investing. I’m an artist as well, and am excited on that score as well. I wish I was 20 years younger, but don’t we all at some point in our life?
    Again, thanks for your time and knowledge.

  10. Sandy Tull

    Oh yeah, finding the right contractor is a prized possession. Especially when they’re doing as much as you’re talking about, they should basically become your partner for flipping houses! It’s always less expensive to pay a little more for someone who will do a good job, than to pay that same person to re-do all the work you paid someone else to do! Home realty definitely takes on a whole other persona while flipping…

  11. Thanks for the help. My brother bought a house to flip about a month ago, but some of the remodeling requires interior demolition. It seems like it could start a very time consuming process. How long should the process usually take?

  12. Thank you for the tips. My brother bought some property that he wants to flip as soon as he gets the chance. Early on in the process there will need to be a little bit of house demolition. I am trying to figure out how to effectively estimate costs for that. Do you have any advice?

  13. alex antonuk

    Thank you for the great post. I was wondering if you or any other investors ever hire Lowes or Home Depot to do the installations of simple things like cabinets, countertops, appliances, flooring, etc. How would the costs compare to hiring a handy man or contractor to do the installs?

    • Mindy Jensen

      I have found their installation prices to be higher than what I can find elsewhere, so no, I wouldn’t use them. But if you can’t find anyone else, I believe Lowe’s and Home Depot guarantee the installation. I’d double check with them on that, though.

      • alex antonuk

        Thank you Mindy. One more question. When you have an extensive remodel job. One that includes demo, moving or adding walls, do you provide your contractor full drawn plans or does he provide that? Two reasons for question is do you need drawn plans to get a permit and how do you communicate to contractor what you want done without plans?

        • Mindy Jensen

          Great question, Alex.

          I have done it both ways. As a control freak, I would never NOT give drawn out plans again. I want to dictate what’s going to happen with the house, not leave it up to interpretation.

  14. I really like your advice to make sure you are choosing the right house at a good location. You want to be sure that you are thinking long-term when it comes to this kind of decision. I’m thinking about redoing a home, but I really need a demolition company to help me out. Do you have any tips about finding a good professional to assist me?

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