Although flipping houses is a popular business, turning a profit is not as simple as buying a cheap home, renovating it, then selling it within 90 days. It’s a risky business and you could lose your investment if you don’t know what you’re doing. To help, we asked the experts to share their tips on how to make a successful flip
Here are the 25 tips on how to flip a house for a profit from the real estate pros:
1. Don’t Try to Do Something Too Big
Ryan G Wright, CEO, DoHardMoney.com
Don’t try to do something too big, especially if you are just new to the fix and flip business. Start with a single-family home and a rehab that will cost $50,000 or less. Buying a large property with an equally huge renovation investment cost can be very risky, especially when you are just starting out. It’s better to start small while you’re still learning the ropes.
2. Work With the Right Construction Crew
Sep Niakan, Founder, CondoBlackBook.com
Working with the right construction crew is key to a successful fix and flip. You need to have people that you can trust to get the job done quickly and at reasonable prices. Unnecessary delays and unforeseen expenses can make or break you. Working with a bad crew can be a massive source of stress that takes away from the joy of flipping and making money.
3. Be Mindful of What Repairs You Put into the Rehab
Than Merrill, CEO, Fortune Builders
One of the biggest traps newbie investors face is over-improving, under-improving or simply investing in the wrong improvements. Do your research on comparable properties to find which upgrades will actually boost your bottom line. Kitchens and bathrooms are often the selling points of a rehabbed property, but other improvements may also be necessary, depending on your property’s current situation.
4. Figure Out Your Max Purchase Price Using ARV & Renovation Costs
Brady Hanna, Real Estate Consultant, Mill Creek Home Buyers
Flippers should figure out the After Repair Value (ARV) of the property – this is the price that the house will sell for when it is all renovated. Take the ARV and multiply it by 70%, and then subtract out your renovation costs. This should be your max purchase price for the property. Using this formula, it takes into account profit margin, realtor costs, and closing costs.
Read our article on the after repair value (ARV) and its formula to learn more.
5. Don’t Forget to Factor in the Holding Costs
Christian Ross, Managing Broker & Realtor, Village Realty
Most newbie flippers who use financing often forget to factor in holding costs into their budget. The holding costs include mortgage payments, utilities, any homeowner association (HOA) fees, and landscaping maintenance – these should all be factored into their budget. If you forget to include these costs, you might end up short on cash.
6. Take the Necessary Real Estate Courses
Ciprian Morariu, Supervisor, RealEstateU
Getting the right type of education is key in flipping houses, so you should take a few courses, read books, and get familiar with the business and the jargon. There is a lot to learn to be a pro in the fix-and-flip business – such as real estate auctions, working with contractors, finding the right projects to renovate, and finding the right buyers.
7. Join REI Clubs and Real Estate Facebook Groups
Denise Supplee, Property Management Specialist & REI Educator, SparkRental
If you are a newbie flipper, it’s best to surround yourself with experienced and expert real estate investors. Join your local real estate investing (REI) club and attend their meetings. Join as many social media groups on the subject as you can. You can post questions and read through their prior posts to learn more about flipping. You’ll learn a lot from the experience of the experts.
8. Understand Risk Factors & Come Up With a Plan
Jacob Sagi, Associate Professor of Finance, The University of North Carolina at Chapel Hill
House flipping is a form of active investment. Successful real estate investors are those who understand the risk factors and know how to efficiently eliminate or mitigate them. By understanding the risks involved in venturing into real estate, you will have a concrete plan how to muster the necessary resources to deal with possible problems and handle rough times.
For more information, check out our article on how to create a house flipping business plan.
9. Get a Good CRM System & Stay Organized
Seth Williams, Founder, RE Tipster
Get a good CRM system and learn how to use it effectively. It helps you to stay organized. Staying organized is very important in a fix and flip business because you need to be able to keep each deal on track and keep each team member on schedule. As a result, you’ll avoid a lot of unnecessary conflicts and emergencies.
Read our article about the best CRM software for small businesses for more information.
10. Plan Your Renovation Carefully
Bobby Montagne, CEO, Walnut Street Finance
Planning is one of the most important stages in a fix and flip. This should include interviewing contractors and subcontractors and talking to engineers and architects if necessary. Secure your funding source. Find out the process, timeline, and costs for getting permits in the county/city where you are planning to flip. Then create a timeline and general budget, which will have to be customized depending on the property.
11. Look For an Up-and-Coming Neighborhood
Sacha Ferrandi, Founder and CEO, Source Capital Funding, Inc
Finding an area that has a bright future but still has inexpensive prices can make successful flips. If the area has a development of new infrastructure, it most likely has a bright future. For instance, a neighborhood that’s widening streets or constructing new shopping centers is one that is growing. Make sure to pick the right neighborhood by doing a proper research about an area’s future development plans.
12. Choose the Right Hard Money Lender
Peter Vekselman, Real Estate Coach & Owner, WeLend101.com
You need money to not only buy a home but also to rehab it to bring it up to sellable standards. It can be difficult to get funding for a fix and flip. Traditional lenders usually require perfect credit and often the process is long. It’s best to find a lender who works with flippers and have an easy application process, require a small portion of down payment, and have a quick turnaround time.
13. Get the House Inspected Before Buying
Michael Marlow, Flipper & Home Inspector, Veteran Home Inspections, PLLC
A thorough home inspection will help prevent undesirable surprises along the way. Once your contractor is done inspecting it, get it inspected again by another home inspector for two reasons. One, you can make sure your contractor did everything they were supposed to do, and that they did it correctly. And two, you can then use that inspection report as a tool when you need to negotiate with your contractor.
14. Fully Understand the Costs Involved
Larry Friedman, Principal & Co-Founder, SDF Capital
Treat flipping houses as you would any other business. You need to understand your costs including the acquisition price, financing costs, holding costs, renovation costs, renovation turnaround time, and selling costs. You should have a projected healthy margin based on these numbers or reconsider whether the project is worth undertaking.
15. List Your Property Slightly Under Market Value
Doug Keller, Marketing Manager, Eddy Homes
When putting the house you have flipped on the market, list it just a bit under market value, typically 2% lower. The reason for this is that you don’t want to hold on to the property too long. This has another benefit as the competitive price could draw in a number of parties that try to outbid each other and increase your profit.
16. Do Your Due Diligence When Purchasing a Distressed Property
Deborah Spence, Real Estate Agent, DeborahSpencesOldit.com
Due diligence is very important when purchasing a distressed property. Make sure the title of the property you purchase is clear and free from liens and encumbrances. If not, gauge the risk involved with buying a property without clear title and know how to work on eliminating judgments, liens, and code violations. Work with the most experienced title company in your area as they will help you navigate the process.
17. Work With a Realtor Who Knows the Local Market
Brian E. Adams, Realtor, StarPointe Realty Central Texas
Talking to a professional realtor in your local market is very important to ensure that you make a profitable flip. Don’t hesitate to ask your realtor a lot of questions about selling the property. Underestimating your area’s closing costs is a mistake you’d not want to make. If you are not planning on conceding closing costs, surveys, and repairs, it can eat a big chunk of your potential profit.
18. Do Not Fall in Love With the Property
Chris Dowler, Owner, Dowler Construction
As a flipper, you have to always remember that your project is an investment, so try not to use your emotions when dealing with the project. Do not fall in love with the house. It’s important to know the local market trends and cater to those, and not do the work based on your personal style. Make sure that you always look at your project in a rational perspective.
19. Update Outdated Fixtures
Ashley Rose Marino, Interior Decorator, AshleyRoseMarino.weebly.com
Even if the old cabinets and outdated light fixtures still work, it doesn’t mean they should stay. Trying to sell a house with mid-90’s track lighting in the kitchen will be difficult to do if you’re trying to make a quick sale. Make sure to update the outdated fixtures as this will help you sell the house fast and at a good price.
20. Widen Your Network & Your Team
Gene Kucherov, Real Estate Expert, Scope Environmental Remediation
Meet people in the industry – agents, brokers, appraisers, home inspectors. The wider your network, the greater your chance of connecting with seasoned insiders that can help you acquire good properties for flips. When trying to form alliances, work with them as a team – after all, offering an equitable position to a potential insider would help you stand out and increase your chances of success.
21. Leave Room for Unexpected Costs
Teris Pantazes, Co-Founder, EFynch.com
No matter how meticulously you craft your budget and your expected expenses, there is a good chance that a problem might come up which will make an added cost to your project. You don’t want such unexpected things to break your project. It’s better to a sufficient buffer in the budget for contingency expenses, typically around 10% or more.
22. Don’t Over-Improve the Property
Corey Liepelt, Realtor & Founder, Homesweethomecolumbus.com
The key to a successful flip is improving only what’s necessary. Research the level of finish of other updated homes that recently sold nearby. Not all neighborhoods expect granite countertops, large walk-in showers, and high-end lighting. Remember, you are not the one who’s going to live in this house, so leave your personal taste out when making improvements – don’t overdo it.
23. Map Out Your Profit Margin Carefully
Adam P. Smith, President, Corefinancegroup.com
If you want to ensure that your flip is successful, you have to map out your profit margin carefully. It’s all about the margins – if you can capture a 25% profit margin (taking into consideration the purchase price, rehab costs, holding costs, and selling costs) then the project is likely worth it. Anything under 20% is not that good. If you could go as high as 30%, it’s better.
24. Focus on Paint, Hardware, & Lighting
Sara Malek Barney, Owner & Principal Designer, Bandd Design
Paint, hardware, and lighting are the best projects that provide ROI for fix and flip homes. Simply updating your light fixtures and hardware throughout your house can take your flip project to the next level with minimal time and money on your part, so it’s best to focus on these items when improving the property.
25. Buy a House Without Structural or Foundation Damage
Damage to the foundation can be very costly and time-consuming to repair. It’s important to buy a house that is structurally sound. Do not purchase a house with foundation issues. Some signs of foundation issues include sloping floors, gaps between the wall and ceiling, cracked flooring on the upper floors, openings at wall seams, crooked doors, and uneven windows.
Bottom Line – Tips on How to Flip a House For a Profit
House flipping is not always as simple as what we see on TV. There are many risks associated with a fix and flip business. If you don’t know what you’re doing, you might lose your investment. However, you can earn a lot from this business if you know how to flip a house for profit. These 25 expert tips on how to flip a house will help you turn a profit.