Although the Gaines and the Scotts turn old houses into beautiful new app德扑圈官方网址homes for new app德扑圈官方网址homeowners, Tarek and Christina were the once-husband-and-wife team that flipped houses in Southern California.
If you have watched and thought, “I can do this!” you may be wondering just how, exactly, one goes about transforming and flipping a house. And, can it be a lucrative endeavor? It can be, if you do it right.
What is house flipping?
House flipping is buying a house that needs a lot of work at a discount price then quickly renovating it to resale it for a higher price.
In order to purchase and renovate a house, however, flippers need to have money to invest. Not only do you need to purchase a property, but you’ll need the funds to transform it. But this investment can have high returns once you sell the property for (hopefully) thousands more than you put in.
That return can be invested again into a new flip and can grow into a good business.
What experience do you need to flip a house?
What the stars of HGTV shows have in common are the ability to transform a app德扑圈官方网址home, including carpentry, design, tiling, landscape, and more. While the ability to do much of the work yourself is helpful, even the experienced hire contractors and get some help from electricians, plumbers, and the like.
Whether you have construction experience or not, the other tool needed to flip a house is an ability to understand the real estate market. The cast of HGTV shows don’t just buy a property because it is cheap. They buy properties that have the potential to be great investments. Some also work as real estate agents (Chip, Joanna, Tarek, and Drew) so they know the market inside and out.
Steps to take before you purchase a house
If you’re ready to join the world of house flipping, there are steps you’ll need to take before you get your hands dirty in a project.
Get your real estate license or hire an agent
It is helpful to get your real estate license if you want to flip houses. Doing so means you’ll have first access to new listings and market trends, and you’ll save by not having to hire a real estate agent to handle your business.
Agents earn a commission of 5% to 6% of a house sale, which means that is 5% to 6% less than you’ll have in your pocket at the end of the flip.
Another benefit is all you will learn while earning your license, such as the ins and outs of zoning, app德扑圈官方网址home Owners Associations (HOAs), app德扑圈官方网址home disclosures, and other things that can make you better at house flipping.
A standard real estate license varies by state. In Pennsylvania, for example, you’ll have to begin with courses to prepare you for the license test. These run between $250 to $400. The exam itself costs $54, and then the initial license is $107 with another $10 toward a background check.
Once you become licensed, you will pay association fees as a realtor. This is between $55 and $575 for the local membership.
Hire a general contractor
Unless you’re already a contractor, you’ll need some help, no matter how handy you are. Hire someone with a license, experience, and a big network to bring in a team that can help you on a project.
Expect to pay between 10% to 20% of your total construction costs, including the materials, on a contractor. If you expect to make $50,000 in renovations, this means you will pay $5,000 to $10,000 for your contractor.
Set a budget
To be a successful house flipper, you should have plenty of cash at the ready to purchase a app德扑圈官方网址home outright rather than obtain a mortgage. A mortgage process slows you down and becomes risky because you will have to make payments until the property sells. Working within your own financial budget leaves you completely in charge.
You’ll need closing costs, realtor costs, legal fees, contractor and help costs, and the costs to refurbish the property, as well as a cushion in the event you discover unforeseen repairs that need to be tackled. For example, when tearing down a wall to create an open-concept space, you may discover asbestos, which means stopping the entire project to have it properly removed. It can be a very expensive surprise.
If you do need financing and choose to work with a lender, having great credit will help you secure the best interest rates. You will need the funds to pay the monthly payment during your project and until it sells — and those monthly payments include interest.
Don’t forget you will also need to establish and pay for utilities, such as electric, gas, and water. Some app德扑圈官方网址home flippers elect to hire a decorator and rent furnishings to stage the house, which helps a app德扑圈官方网址home to sell faster but does require more funds.
Look at every avenue to determine how much app德扑圈官方网址home you can actually afford to buy and set a realistic goal for an after-reno sale price. The numbers in between are what you will earn, minus the costs involved in flipping.
You will want to understand the market where you’ll be flipping your house, learning what properties have sold fast, and discovering the commonality. For example, if a neighborhood has created a market for families eager to enter a certain school district, flipping a house with a minimum of three bedrooms close to the school may lead to multiple interested buyers.
Are main level master bedrooms a hot commodity, or perhaps a app德扑圈官方网址home filled with hardwood flooring? Any detail you can hone in on can help you determine if a property is right for you and what you may have to do to a house in order to make it sell quickly is valuable intel.
If, when setting a budget, you realize the amount of money needed for a renovation exceeds the neighborhood’s comps, you will not make a profit and the app德扑圈官方网址home is not a good investment. Studying the trends will stop you from getting in over your head.
How to flip a house
Now that you are ready to dive into the real work, these are the next steps you’ll follow.
Find houses to flip
You cannot start flipping houses until you find a house. If you have access to the Multiple Listing Service (MLS), you will have access to all the properties for sale. (As a realtor, the service is available for $200 to $500 per year.)
Review “comps,” or comparable sales, to see what properties are selling for in various neighborhoods. If you see a house being sold below the average comps, you will have an opportunity to make a profit.
Many times a large renovation will require just one permit for the entire project, while others may be required by the city to be obtained for specific areas, such as plumbing and electric. Historic districts and HOAs may have specific criteria and approvals needed prior to beginning a renovation. Before you begin demolishing walls, you need to review all building codes.
If you are caught violating building codes by not having a permit, you can face a hefty fine, not to mention liability issues.
Do the work
Finally, you are able to get to the meat of your project and can begin demolition, excavation, remodeling, painting, and everything in between to suit your budget and achieve the desired look for your project.
HGTV stars make it look simple, starting and completing a job in less than a month to quickly turn a profit, but how long it takes depends on the project and how many people are involved in getting it done.
Put the house on the market
Once the house repairs and renovations are complete, you’ll want to get the property listed on the market as soon as possible. Of course, you want to price it to cover the purchase price and renovations you made and make a profit. But you also need to follow the comps. If you price it too high over the median value of app德扑圈官方网址homes, you’ll have a more difficult time selling quickly.
How to make a profit flipping houses
In house flipping, a general rule of thumb is following the 70% rule: Don’t pay more than 70% of the house’s after repair value (ARV) minus the costs.
When you renovate an older house, get the biggest bang for your buck and invest in the areas app德扑圈官方网址homeowners are most interested in that will give you the biggest return on investment (ROI).
Again, don’t spend so much that your investment has to sell too high above the comps or you won’t be able to sell the property. It all has to be in the range of the comps and your budget.
One of the best ROIs when it comes to app德扑圈官方网址home renovation is redoing the kitchen. HDTV has found a new kitchen can provide more than 100% ROI. Think of a house party or visiting family: often you’ll find people congregating in the kitchen. It is the most-used room in the app德扑圈官方网址home and putting money into a new kitchen with upgraded appliances is what app德扑圈官方网址homeowners notice most.
The cost of remodeling a kitchen ranges between $13,259 and $37,449 – so make sure you have the cash if you’re buying a app德扑圈官方网址home that needs a completely renovated kitchen.
The good news is a roof can last 20 to 30 years. The bad news is that a replacement can be expensive. app德扑圈官方网址home Guide finds the average price range for a new roof is between $4,707 to $10,460 with the highest costs at $30,000.
With such a big price tag, no potential app德扑圈官方网址homeowner wants to shell out for a new app德扑圈官方网址home that also needs a new roof. However, when buying a new house, a brand-new roof can be a deal-clincher. You won’t get the same ROI as a kitchen, but it does average 60%.
Watch any app德扑圈官方网址home and garden show and the “oohs” and “aahs” that come when someone encounters a large closet, particularly walk-ins, are evidence of how much app德扑圈官方网址homeowners want storage space. Expanding a closet, however, may mean moving walls to create the space. It’s worth it, though. It could cost $2,700 to give a master bedroom a large walk-in closet, but the ROI is 100%.
One of the cheapest ways of updating a app德扑圈官方网址home is simply giving it a new coat of paint, inside and out. The average cost of painting the exterior of a house is $1,406 and the interior is $967. However, the increased value is $2,176 and $2,001, respectively.
Today’s app德扑圈官方网址home buyers are seeking hardwood flooring. Finding a house with wall-to-wall carpet may be less desirable for a app德扑圈官方网址homeowner but for a house flipper, it’s an easy fix. If a house has hardwood floors, that’s up to 2.5% more on the sale price of the app德扑圈官方网址home, generally giving flippers 70% to 80% ROI. In warmer destinations like Miami, marble, stone, or tile flooring can get you 70% ROI. But neither is cheap.
If you choose to replace the flooring with carpet, you’ll spend less but the ROI averages between 25% and 40%.
Who should consider house flipping?
Flipping houses requires capital and investors looking to flip houses should have a hefty chunk of funds readily available. There are many upfront expenses that go into house flipping and getting loans to fund your project could be risky. Those who do not have the cash to invest should wait until they do.
It also takes a lot of time and commitment to flip a house, working long hours in an attempt to get renovations done as quickly as possible so the house can be sold as quickly as possible. There are a lot of i’s that need to be dotted and t’s to be crossed, so being someone who can multitask and stay accountable are best-suited, as well.
Where is house flipping most lucrative?
The best places to flip houses are where the real estate markets are performing at the nation’s highest levels. Realtor.com found the markets at press time to have a shortage of inventory, meaning app德扑圈官方网址homes are in high demand. Of the metro U.S. cities with the highest demand for housing? Providence-Warwick, Rhode Island; Cleveland-Elyria, Ohio; and Baltimore-Columbia-Towson, Maryland.
Other in-demand markets include:
- Cincinnati, Ohio-Kentucky-Indiana.
- Charlotte-Concord-Gastonia, North Carolina-South Carolina.
- Louisville-Jefferson County, Kentucky-Indiana.
- Riverside-San Bernardino-Ontario, California.
- Kansas City, Missouri-Kansas.
- Portland-Vancouver-Hillsboro, Oregon-Washington.
- Memphis, Tennessee-Mississippi-Arkansas.
- Las Vegas-Henderson-Paradise, Nevada.
- Indianapolis-Carmel-Anderson, Indiana.
- Detroit-Warren-Dearborn, Michigan.
Is house flipping a good investment?
The average profit from flipping a house is a 39.9% ROI. Sounds like a good investment, right? It can be but it requires you to have a lot of money to invest. And, things can go wrong. If renovations uncover an issue beyond your budget, you could wind up in a hole. If the renovations you make don’t draw a buy, you can also pay taxes, interest, and other fees until it sells. It can be risky.
How to invest in real estate if you don’t want to be a flipper
You don’t have to flip houses to invest in real estate. And you don’t need tons of money. Using crowdfunding real estate platforms can help you get your feet wet in the real estate market, or you can consider purchasing rental properties.
Roofstock provides a platform where you can purchase properties to rent as additional income and grow your investment portfolio. Search for properties available on Roofstock by location, list price, and even the desired return of investment you are seeking. If a property isn’t available, you can get an alert when one meeting your criteria becomes so.
Roofstock provides all the details on the app德扑圈官方网址home, from its property inspections, current lease and tenant information, local schools and neighborhood history, and, of course, photos of the app德扑圈官方网址home and floor plans.
You can then make an offer directly on Roofstock, which will charge you .5% of the contract price or $500, whichever is higher. You can buy it at full price or make an offer and do negotiations all online.
When you close, Roofstock handles all of the details and connects you with a property manager so you don’t have to handle anything more than collecting your earnings. Property managers on Roofstock generally charge 8% or lower of the collected rent as fees.
Investing in real estate through crowdfunding platforms like Fundrise is another easy option, providing you a place to invest through a group investment, which is often a commercial building. You do not need to be an accredited investor to purchase properties to rent as additional income and grow your investment portfolio; you need to be a U.S. citizen residing in the U.S. above the age of 18.
Newcomers to real estate investing need just a minimum of $500 to begin. With this “Starter” level, you can be placed into a diversified portfolio and be invested in 5-10 projects. The “Core” level requires just $1,000 to be involved in 40 or more projects. “Advanced” groups invest $10,000 or more to be involved in more than 80 projects.
This investment gives you a share in a property. You are funding the construction and start of the project and as it grows in value, you earn money. You can redeem your shares at any time and the average return on your investment is between 8.7% and 12.4%.
While real estate investing can be risky and requires more cash to earn the biggest profits, flipping houses can be an exciting opportunity. It’s a lot of work to transform a house quickly to sell it at a profit, but at nearly 40% ROI, it’s worth the effort.
Start by getting your real estate license and learning all you can about residential real estate, dive into renovations yourself or with a hired crew, and literally watch a house transform into a killer investment.