House flipping is a very popular and legit way to make money in real estate. But before you venture into this lucrative business, there are plenty of things you need to know so that you don’t end up making losses.
In this article, we are going to discuss everything you need to know about flipping a house, from what it entails to its pros and cons, and things you need to know before you flip a house.
Let’s get started!
What is house flipping?
In simple terms, to flip a house means to buy a house at a low price and then sell it at a higher price. Buying the house at a lower price is essential to making a profit. So if you buy the house at a higher price, chances are that you may not make a profit. This is why you need to ensure that you buy the house at as low a price as possible. But achieving this can be quite difficult.
When a house has a price that is below market value, it may mean that it needs detailed repairs, maintenance, or updates, which can be quite expensive. In addition to that, finding a home that is priced below the market is quite rare and they usually sell quickly, making the market very competitive.
The majority of flip houses require repairs and improvements, meaning that for the flipping to be as profitable as possible, you must invest time, money, and effort to get the home in better condition for resale.
What are the pros and cons of flipping a house?
Before you venture into this lucrative business, you need to weigh its pros and cons to see if it is the right business venture for you.
The pros of house flipping
- You can make a good profit
Without a doubt, you can make a significant profit by flipping a house. People who flip houses full time and depend on it as their main source of income can make a substantial income. But remember to do your research thoroughly if you want to make profits.
- You can do it as a part-time job
One thing with flipping houses is that it doesn’t require your full-time attention, meaning you can still keep your day job and flip houses part-time if you want to make extra money.
- Personal development
While it can take plenty of money and time, you can actually gain a lot of valuable experience from flipping houses. Purchasing homes and materials regularly will help you develop negotiating skills, time management skills, the ability to delegate tasks, etc. All of these can make you become a better salesperson.
- You can potentially lose money
This is the main downside of flipping a house. While you can make a lot of money quickly by flipping houses, you can also lose the money just as quickly.
One of the most common ways to purchase a home for flipping is through auctions or foreclosures. In such situations, you may not find the time to do a full inspection. It is basically a gamble. So you may end up buying the house at a price that won’t be profitable when selling it. Fluctuations in the real market can also make you run a loss.
- It is stressful
There is no doubt that flipping houses is not only a time-consuming business but stressful too. Sometimes, things will take longer than expected, and they may not work out exactly as you planned. You may make mistakes or miss deadlines. But if you have more experience, you are less likely to get derailed.
What you should know before you flip a house
There are plenty of things you need to know before you flip a house. Understanding the basics of this business can help you make the process less stressful and make substantial profits. Here are some of the essential things you need to know before flipping a house.
- Treat it like any other job
Before you even think of flipping a house, know that the job can be very labor-intensive just like any other job. Even if you don’t plan on doing the legwork yourself, you must find and manage contractors, deal with any issues that may crop up, and make daily decisions.
- Know how you will finance it
Another crucial thing you need to know is how you will finance your home flipping. How will you purchase the property and cover all the expenses such as paying contractors or home inspectors? You can utilize financing for flipping houses, which is basically a loan. You can also use a hard money lender.
- Understand the market
Of course, you need to understand your local real estate market before you flip a house. Know the market value of homes in your local area. By knowing how many homes are being sold in the area, you will be able to come up with a reasonable price for the flipped house and still make a profit.
- Your purchase price can make or break your flip
One thing you need to know is that if you spend too much on repairing and remodeling the house, you may end up with zero profit or even worse. If you want to make house flipping work for you, you need to find a home with a low price you can pay for it, cover all the repair costs, and sell it at a price that you will still make a profit.
- Working with a reliable contractor can make a huge difference
Remember that not all contractors are created equal. If you have never worked with a reputable contractor before or know someone who has, you may find it hard to hire one. Regardless, you must hire one. The contractor will handle all the repairs and remodeling. If you find an experienced contractor, they will do a perfect job, leaving the house looking as good as possible, hence attracting a reasonable selling price. And this can just make you get a significant profit.