TV shows sure make house flipping look easy. You find a cheap house, renovate it and then sell it for a healthy profit. If you ask the flippers themselves, however, you will discover the huge amount of work and substantial risks involved in real estate flipping. But if you are willing to put in the hard work and learn from other flippers’ mistakes, you could easily find a money maker in flipping. Here is a brief guide to get you started on how to make money flipping real estate.
4 Essentials of a Successful Flip
To get a good profit on a house flip, here are four essentials that must be present.
1. A low-cost property worth buying
While location is considered to be the most important thing in real estate investment, doing the math is equally important to a flipper. Fail to do the calculations or do them wrongly and you will end up with a loss. The first step in your math should be determining the purchase price that will produce the greatest probability for good profit. Logically, the lower the house price the better for your margins. So you are going to be looking for cheap houses, which are generally not easy to find. But then again, you have to be careful not to go to low that the house is simply not worth buying due to its dilapidated condition. A run house will cost more in repairs, threatening your margins, perhaps even obliterating them. One of the best places to find cheap houses is foreclosure auctions. If you are lucky, you can get your hands on a cheap house that is in relatively good shape. Be very careful however, there are several risks involved. You have to pay cash, there is no title policy and in some cases there is no time to take a thorough look at the property.
2. A good affordable contractor
To get the highest possible price from the sale of the house, you have to make several repairs. This is another major cost that has to be taken into account when doing your calculations. The biggest challenge here is finding a contractor who will agree to do high quality renovation at a reasonable price. Do your research, ask around and you might just find someone good. But to be safe, it is always a good idea to overestimate the cost of repairs. Once you do your calculations, add around $5,000 to it. This will ensure that you are not caught by any surprises.
3. Financing the flip
It is very difficult to find a traditional bank or investor who is willing to finance a real estate flip. One reason for this is the extremely short period of the loan. Most flips are executed within six months. Traditional lenders do not see this as enough time to earn a substantial interest. The best alternative to traditional lenders is private lenders. These are private individuals who will loan you the money directly and without most of the hustles involved with traditional lending (Hard money lending). Though you can get the amount of money you want though private lending, it is important to note that it comes with higher than normal rates between 9% and 12% and sometimes even up to 18%.
4. A good deal for the property
You may have done everything right up until this point. But it could all come down crashing if you fail to get a good sale price for the house. This is where you find out whether your calculations were correct. Some flippers have been forced to hold onto the property for a year or more as they wait for its value to rise. This is a risky move and will most probably not make you any profit, and could even lead to a loss.
How Much Money Can You Expect to Make?
Like anything else real estate, this depends on several factors including location, type of property and quality of renovation. But you will find most flippers getting a profit between $25,000 and $35,000. As you get better, you can even make $50,000-$75,000 every now and then. If you get really good at it and invest in higher dollar properties you can expect to make $100,000 plus+. Getting past this figure is extremely difficult for most real estate investors. The best way to get rich and stay that way through flipping is to deal in a high volume of flip projects.