Understanding how to make money flipping houses isn’t as easy as it seems. You need to know how much the renovated property is worth and what it will cost to flip it. Profitable house flipping is possible if you do your research and understand the numbers. You also need to consider the cost of financing.
Below are the seven steps to make money flipping houses:
1. Find the Right Neighborhood to Invest In
One of the most important steps to learn how to make money flipping houses is having in-depth knowledge of the market you want to invest in. You can fix up a home, but you can’t fix up a neighborhood so keep that in mind when evaluating the neighborhood where you want to invest.
Here are a few things you need to research when looking for the right neighborhood:
How Much Homes are Selling For
If you’re interested in flipping houses for profit you need to know the average sale price of homes in the area to identify projects that have the potential to be flipped for a profit. You should also know the types of home being sold. For example, two bedroom ranches may be a dime a dozen, but three bedroom Victorians may command a premium.
If you’re a real estate agent, search your MLS for homes that sold in the past year. You can get a report quickly. If you’re a house flipper, you can work with a real estate agent to pull an MLS report for you or do online research on websites like CurbBook.com, Redfin or Zillow for recent sales.
Calculate the Months of Supply
One way to know how quickly homes are selling in a neighborhood is calculating the “months of supply.” Months of supply is the number of months it would take to sell all the homes currently on the market in a specific area. It also helps determine if you’re in a buyer’s or seller’s market.
Here’s how to determine if you’re in a seller’s or buyer’s market by using the months of supply:
- Seller’s Market: Months of supply is lower than six
- Buyer’s Market: Months of supply is over six
To find out the months of supply in your area, you need to find out how many homes are currently on the market, as well as the number of homes sold each month. For example, if there are 20 houses on the market and five sell each month, this means there are four months of supply on the market.
Keep in mind that since you’ll be on the buying selling side in the same year, you’ll probably want to focus on neighborhoods with less than six months of supply when possible. If not, your renovated home might stay on the market longer than your budget allows.
Research Market Trends That Will Affect Home Prices
Once you have a firm grasp on pricing in your local market, you need to dig a little deeper and figure out where prices are going to be over the next couple of years. In order to find market trends, you can read local newspapers, blogs, and national press.
For example, perhaps there’s a new hospital being built in a nearby area which will employ huge numbers of people. That may mean rental prices in the neighborhood are going up, which means that multifamily prices are going up as well. Knowing the market in your neighborhood and in a few surrounding neighborhoods will help you identify deals worth pursuing.
Investor Than Merrill, star of A&E’s “Flip this House” and the CEO of FortuneBuilders agrees:
“You also need to be mindful of the bigger picture. Taxes, school systems, employment and convenience play a major factor for end buyers. This would mean buying in a town with low taxes or increased employment opportunities. If buyers are moving out of your area, demand will eventually decrease and sooner or later this will end up being reflected in your sales price. There is nothing wrong with making a small profit, but if you have to dedicate a large amount of your time and funds for the next four months, it may not be worth it for you.”
– Than Merrill
Distressed Neighborhoods vs High-Demand Neighborhoods
Your research may show a strong market with less than six months of inventory. However, this ignores the “shadow inventory” that may exist in the neighborhood. There may be a large number of REO (Real Estate Owned) or foreclosed homes in the area which can bring down housing prices. However, you can still make money flipping houses in distressed neighborhoods.
Crime rates could also be an issue with location. When it’s time to sell, it might be hard finding buyers. This doesn’t mean these areas are completely bad investments. Many investors choose distressed areas to revitalize and provide quality, affordable housing for moderate to low income families. Make sure the numbers work, the property can be resold, and understand turnover may take longer.
Eric Workman, Vice President of Marketing and Long Term Financing at Chicago-based Renovo Financial, a residential rehab lender, recommends working in high-demand neighborhoods.
“The most desirable markets are those with growing populations, diverse economies, strong local investment, and a housing stock that lends itself to both short- and long-term investment opportunities. And when choosing an area within any market, house-flippers should focus on those with a good school district, access to transportation, and employment opportunities.”
– Eric Workman
A more economical strategy is to find neighborhoods on the outskirts of high-demand neighborhoods. A house on an unattractive block in a great school district might do better than a house on a nice block in a mediocre school district.
2. Find the Right House to Fix-and-Flip
Once you have identified the neighborhood, you can select a house within that neighborhood. While there is no one best way to find houses to flip, investors generally agree that referrals, driving through neighborhoods you want to work in, the MLS, and advertising are all great ways to find projects and learn how to make money flipping houses.
Here are some key ways to find the right house to fix-and-flip:
Drive for Dollars
One way to find properties to flip is to explore neighborhoods you’d like to work in and look for poorly kept or vacant homes. If you get in touch with the owner, he or she may need help and be ready to move. Investors have reported success when reaching out directly to the homeowner.
Investor, broker and attorney Bruce Ailion, has found many great deals this way,
“Some of my best acquisitions have been located when I am wandering around. I’ll see something, follow up on it, and solve the seller’s problem by getting them out of the property.”
– Bruce Ailion
Another way Bruce finds deals is by networking with other brokers.
“I find properties by networking with brokers. I am known to pay cash, close on time, and not leave everyone feeling beaten up at the closing.”
Here’s why this works. Brokers, contractors, or other real estate professionals may not have the time, resources, or connections to flip a home profitably. Instead, they may just send the listing on to someone they trust as a favor or for a small finder’s fee.
Fort Worth Real Estate Investor Emily Cortwright also votes for referrals as the best source to find homes to fix-and-flip:
“My favorite strategy for finding homes with great ROI is by word-of-mouth referrals from people you know and network with. We’ve spent thousands of dollars sending “Yellow Letters” (common investor mail marketing pieces) to homeowners with the anticipation of finding the few that are willing to sell their home off the MLS and at a discount. A few deals have come from our direct marketing efforts, but after tracking the lead sources of the homes we’ve purchased, we’ve come across the standard 80/20 rule that 20% of our deals were coming from 80% of our spending and efforts.”
– Emily Cortwright
The Multiple Listing Service (MLS)
One of the most common places investors find fix-and-flips is on the MLS (multiple listing service). Look for homes that are listed incorrectly, in poor condition, or have a small number of bedrooms vs square footage. For example, a 3000 square foot 2 bedroom home can most likely be converted into a three bedroom home, delivering a much higher sales price.
Here are some of the mistakes real estate investor and personal finance writer Eric Bowlin has found on the MLS that can lead to flipping houses for profit:
“I’ve found a multifamily property that was listed as a “business opportunity,” a single family home with an in-law apartment listed as a multifamily, and most incredibly, seven duplexes (14 units!!) listed as seven units.”
– Eric Bowlin
Advertising (Guerilla and Otherwise)
Outside of the MLS, you can also use advertising to find houses to fix-and-flip. Since you’re looking for undervalued homes, this can be an uphill battle. That said, plenty of fix-and-flip pros use advertising to find house projects.
Here are some popular ways investors advertise:
If you’ve ever driven by a lot of “WE BUY HOUSES” signs, it was likely a neighborhood that is very attractive to house flippers. Known in the industry as bandit signs, their goal is to find sellers who need to sell their homes fast. Homeowners who call on bandit signs are probably highly motivated to sell, making this an inexpensive way for investors to acquire properties.
Direct Mail – Yellow Letters
Direct mail is another way to reach homeowners who may be ready to sell. The most popular form of direct mail investors send are called Yellow letters. Yellow letters are often handwritten letters (or printed to look handwritten) that investors mail or leave on the door of a home that looks distressed. They’re basically a variation of the “we buy houses” pitch, but with a personal touch.
The name of the game here is quick and dirty instead of slick and professional. People who are about to go into foreclosure or are just desperate to sell want to sell quickly. For many people, slick and professional equals slow and expensive.
3. Assess the Property and the Deal
Once you find a listing that looks like it may have the potential for a fix-and-flip, the next step is to schedule a showing and evaluate the property in person. If possible, bring your contractor with you. Together you can make notes of visible work needed and discuss how to make money flipping houses in that location.
Here’s what to look for when assessing fix-and-flip properties:
Calculate the Potential After Repair Value (ARV)
The first step in flipping houses for profit is making sure your math works by determining your ARV (After Repair Value). In order to determine your ARV, you or your real estate agent need to go back to your MLS and find recently sold homes that are similar in size and condition to the home you’re considering after the renovations.
Use the 70% Rule
The goal of any fix-and-flip project is to sell the house for a price that is not only higher than the purchase price, but higher than the purchase price plus renovation costs, carrying costs, contractor costs, and other fees. To assess how to make money flipping houses, successful flippers use the 70% rule.
Typically, investors pay 70% of the expected After Repair Value (ARV). For example, to calculate a single-family house with an ARV of $250,000 that needs $25,000 in renovations, multiply the ARV by 0.70 (70%). So, $250,000 x 0.70= $175,000. Deduct expected renovation costs of $25,000, leaving a purchase price of $150,000.
If borrowing the $150,000 from a hard money lender at 12% interest some anticipated expenses include:
- Price paid for the home: $150,000
- Closing costs when buying: Varies between up to 3% of the sales price
- Renovation costs: $25,000
- Real estate commission when selling: Varies up to 7% for single family, residential
- Closing costs when selling: Around 3% of the sales price
- Loan origination fee: $4500
Assume it will take six months from closing on the purchase to closing of the sale. This means during those six months there will be additional expenses on the home. These are called holding costs or carrying costs.
Get a Professional Home Inspection
After you’ve found a home that has decent renovation potential, the next step is to look for more extensive repairs the house may need. You can do an initial inspection yourself, but if you’re interested in moving forward, you need to call in a professional home inspector.
Welmoed Sisson, a licensed home inspector from Maryland shared her top four red flags that investors can usually find out on their own.
“If you aren’t sure, you should call a licensed home inspector. A few hundred dollars for an inspection that can potentially save your entire deal is always a worthwhile investment.”
– Welmoed Sisson
Welmoed’s Top Four Deal Killers:
1. Big Foundation Cracks
Watch for horizontal and other large cracks in masonry block walls. These can mean a repair bill from a few thousand dollars for a small crack to tens of thousands for excavation, stabilization, and reconstruction.
2. Damaged Chimneys
Any type of chimney repair is going to be costly simply because the risk of doing it wrong could lead to disaster. Also, it usually requires big equipment like lifts or cranes, which adds to the cost. Some chimney repairs are minor surface fixes, but if the entire structure is separating from the house and leaning, it may need to be completely rebuilt.
3. Old Electrical Wiring
Any house with a fuse box is in need of an upgrade. It will probably not have any modern wiring that can support today’s power needs. If a house has an accessible attic and an unfinished basement, rewiring may not be horrendously expensive, but it will still run at least $5,000 once you factor in the new panel, new receptacles, and new switches. It all adds up.
4. Buried Oil Tanks
More common in New England, buried oil tanks have become a major environmental headache. Many buyers are skittish about having one, even if it has been properly abandoned in place. If it’s leaking, removal becomes a hazardous waste disposal issue and costs can skyrocket into tens of thousands of dollars for extensively contaminated soil.
While a major repair like replacing a roof or leveling floors still might be profitable, it’s not something most investors would recommend for beginners. If your contractors are highly skilled, and the deal is solid, it’s not something you should rule out entirely. Make sure the numbers make sense.
4. Finance Your Fix-and-Flip Project
Figuring out how to finance and still make money flipping houses can be challenging for beginners. Many conventional lenders won’t lend on houses in poor condition, or to borrowers who don’t have reliable independent income, fix-and-flip experience, or high net worth. Luckily, there are other options.
Types of Fix-and-Flip Financing
Hard Money Lenders
Beginners or borrowers with bad credit
Private Money Lenders
Investors with bad credit
Real Estate Crowdfunding Loans
Experienced investors who need money quickly
Here are some of the most popular fix-and-flip financing options:
Hard Money Lenders
Hard money lenders are small groups of investors who lend money to house flippers. The reason hard money lenders are preferred by many house flippers is they generally care more about the ARV (after repair value) of the home than about the experience or qualifications of the borrower.
For more information on hard money lenders, check out our hard money lender directory. After extensive research, we chose LendingHome as the best hard money lender for fix-and-flip projects. They provide 12-month loans with competitive interest rates and a preapproval in as little as three minutes.
Private Money Lenders
Private money lenders are very similar to hard money lenders. The primary difference is that they are generally smaller groups of investors, or sometimes just one individual. With thousands of private money lenders to choose from, we recommend new investors either get a referral from a fix-and-flip pro or use a national directory.
Conventional Bank Loans
Another option to fund your fix-and-flip is through a conventional mortgage loan from a bank. Since most banks won’t lend on homes in poor condition, this can be challenging for beginners without substantial assets or house-flipping experience.
Real Estate Crowdfunding Loans
Real estate crowdfunding collects small amounts of money from large pools of investors. With real estate crowdfunding lenders you can typically get money very quickly. A hard money or private lender may take two or more weeks to close. Crowdfunding lenders can close in a few days.
Since competition in the real estate crowdfunding space is growing rapidly, there are dozens of options available. Patch of Land offers accredited investors high-yield, short-term projects with average returns of 12%. They specialize in real estate projects that other lenders won’t approve.
What to Look for in a Lender
When you’re trying to figure out how to make money flipping houses and searching for the right lender, three things to keep in mind are: their interest rates and fees, how long they lend money for, and how quickly you can get the money.
Here’s how LendingHome CEO and Co-Founder Matt Humphrey describes vetting a lender for a fix-and-flip project:
“A good rule of thumb for vetting online lenders is to look for ones that close within 15 days, provide a loan to value of between 80% and 90% of the purchase price, offer rates starting at 7%, and have a proven track record of success scaling their operation.”
– Matt Humphrey
How Fix-and-Flip Loans Work
Now that you know a few of the options available for financing your fix-and-flip project, here’s a quick overview of how these loans work.
- Get approved: To get a loan for a fix-and-flip project, you will need to fill out a loan application and present an overview of the project to the bank. It will have an appraiser assess the property’s condition and ARV.
- How much you can borrow: Most lenders offer between 65% and 80% of the After Repair Value (ARV) of the home. For example, if you’re looking at homes with an ARV of $200,000, you’ll likely get a loan for around $140,000.
- Loan-to-Value (LTV): Some lenders focus on Loan to Value (LTV)—the current value of the home. That means a $100,000 purchase price, with 80% LTV will get up to $80,000 in funding. ARV loans typically are for more extensive renovations while LTVs are for houses that need minor renovations.
- Loan term: Fix-and-flip lenders generally loan from one to 12 months. This is because house flippers generally buy, renovate, and sell a home in under one year.
- Interest rates and fees: For most fix-and-flip lending, interest rates can range from 5.5%-12.5% depending on your credit score, assets, income, and ARV of the home. You will also need to pay roughly 1%-5% of the value of the home to the lender at closing.
For more information on fix-and-flip loans and where to find them, check out our in-depth guide on fix-and-flip loans.
5. Assemble Your Dream Team
While you will likely work with a lot of contractors, title companies, appraisers, inspectors, lenders, brokers, and lawyers in your fix-and-flip career, forging strong relationships early on can help you make money flipping houses.
Even if you don’t have a project lined up, offering to buy an experienced general contractor a drink in exchange for picking their brain can help educate you on the process.
While you may end up working with dozens of contractors in your career flipping and fixing houses, finding one great, experienced general contractor that’s affordable, sticks to deadlines, and is easy to work with can be your smartest move.
Here are three things to expect when choosing your contractor:
- You need to be able to trust them
- They need to do good work
- Their fees need to work with your budget
Also, remember that you will likely need several contractors for different jobs. A skilled plumber, a skilled electrician, a skilled skim coating contractor, and a skilled general contractor may all be needed depending on the size and scope of the project.
If you’ve ever had work done on your own home, you probably know that finding great, affordable contractors can be very challenging. Mediocre contractors may be less expensive (or not), but might not be able to do the job to your satisfaction. Great contractors are typically expensive and very busy, but they can contribute to your goal of flipping houses for profit.
Here are some tips to make the process easier:
How to Find the Right Contractor for the Job
Real estate investor and personal finance writer Eric Bowlin says the best way for new investors to find good contractors is to ask other investors or real estate agents for referrals. Once you finish a few projects and build trust with your contractors, you can ask them for referrals to other good contractors.
“When I did my first flip, I chose contractors by getting referrals from other investors. I ask each tradesman for referrals to the people they like to work with. For example, I ask the electrician for a good plumber. They tend to work many projects with different contractors and can usually point you toward the best ones.”
– Eric Bowlin
BiggerPockets forums are a great place to find fellow like-minded investors who are also interested in how to make money flipping houses. You can also look for fix-and-flip meetups or Facebook groups in your area.
You should always be looking for great contractors to work with. Holly McKhann, a Southern California investor who has successfully flipped over 200 properties, told us that networking is the best way to find great contractors.
“We’ve gotten contractors by looking for trucks on the street belonging to contractors in the neighborhood where we’re flipping. We met one of our contractors at a glass shop while waiting for an order. Just talk to people and ask them who they know who might be of help to you.”
– Holly McKhann
How to Vet Contractors
Not properly vetting your contractors can be costly. Make sure they hold a current contractor’s license and don’t have numerous bad reviews on Yelp, Angie’s List, or the Better Business Bureau. Hire them for a small job before hiring them for a big job. If they finish the small job on time, to your satisfaction, and within your budget, then work with them on larger jobs.
Unless you are very confident in your home renovation skills, most investors we spoke with told us completing the renovations yourself is not a good idea.
Nicholas Baur, Missouri-based home investor, and real estate broker shares his experience:
“I always recommend hiring a contractor 100% of the time. No exceptions. Don’t do the work yourself. If you are doing the work yourself it’s because you are too thin on your margins and it slows you down in finding your next deal. That said… sometimes I’ll help out with the demo, like swing a hammer for 10 minutes or kick a wall. It’s kind of therapeutic and kind of fun, but then I quit and go back to the office. Honestly, the highest paying skill set of real estate investors is finding the next deal, not hanging drywall.”
– Nicholas Baur
If you are confident in your skills, there are plenty of small renovations that don’t require permits. Tiling, painting, cleaning, removing carpets, or refinishing floors can all have a significant impact on ARV and you may be able to do them yourself. You will need to decide if your time is better spent making money flipping houses or sanding floors.
The Home Inspector
You’re going to need a great home inspector. Home inspectors will scour the property from top to bottom looking for potential issues. Finding out the foundation is faulty after closing on a home could cost you a lot of money. A good home inspector will catch these problems beforehand, saving you time, headaches, and money.
Get a referral from other investors, or a trusted real estate agent, to find a good home inspector. Once you’ve found someone you like, here’s how to vet them.
How to Vet a Home Inspector
Work with an inspector who is a member of one of the three professional associations for home inspectors, ASHI, NAHI, or InterNACHI. Membership doesn’t guarantee they’ll be highly skilled, but it does mean they at least take their career seriously.
Once you’ve found someone who belongs to a professional association, check for online reviews on Yelp, Angie’s List, and the Better Business Bureau. If they have good reviews, you can ask for a sample home inspection report to see how detailed they are.
The Real Estate Agent
Finding a great real estate agent who understands the needs of investors can be difficult.
While skills are important, what you need most from a real estate agent is access to the MLS.
Make sure you communicate clearly what you’re looking for in a property. The strategy for finding a great agent is the same for investors as it is for consumers—get a referral!
How to Vet a Real Estate Agent
While your cousin Frank’s best friend from high school may be a great real estate agent, you should still vet them if you want them to do a great job for you. At a minimum, you want to know which brokerage they work for, how long they’ve been a real estate agent, and if they’ve worked with investors before.
Title Companies and Attorneys
You may not need a title and escrow company or lawyer right away, but it is wise to begin your search early. To find a great lawyer or title and escrow professional get referrals from seasoned professionals.
According to fix-and-flip pro Elizabeth Colegrove, one of the easiest ways to find a team to work with is to first find a real estate agent you trust, then use their vetted team of professionals.
“I find one AMAZING person in my team (in my case Realtor). From there I use their contacts to find a contractor, mortgage broker, lawyer, title company, contractor, inspector, movers, landscaper, ac vendor, etc. By using my key person’s team, I’m able to streamline things. Over time I find my favorites and build my team …”
– Elizabeth Colegrove
Step 6. Renovate the Home
Once you’ve learned how to make money flipping houses, closed on your fix-and-flip project loan, hired a contractor, and decided what work will deliver the best ROI, it’s time to complete your flip. You’ll now need to wear your project management hat to make sure the work is getting done on time, within budget, and to your satisfaction.
Here are some quick tips for working with contractors:
Check In & Chip In
While being a constant presence on the job can be distracting, you should have your contractor update you regularly. Also check in periodically to make sure work is getting done according to your criteria and schedule. If you plan on doing some of the cosmetic work yourself, make sure to work this out with your contractor beforehand. This way you won’t interrupt his or her work.
Help Gather Materials
For fix-and-flippers a trip to Home Depot can be like a trip to a candy store. While you want to pick out your finishes, after you have done so, let the contractors or store delivery people handle the rest. Your time is better used hunting for your next project. Once you’ve completed a few flips and know what materials look great and have a good ROI, you can give your contractor a list.
Pay Your Contractors
It makes more sense to pay your contractors an initial deposit, then another payment halfway through, and a final payment when the project is finished. If you finance the project with a hard money loan, typically the lender will issue a line of credit you can draw against after the contractor’s invoices are submitted.
At HouseflippingHQ, fix-and-flip expert Justin Williams recommends paying as work is completed.
“Some investors pay their contractors weekly but for the most part I think it is best to pay them based on what they have completed. The last thing you want is to pay your contractor all the money and not have the job completed! Good luck getting it done!”
– Justin Williams
Than Merrill’s Top Three Renovation Ideas to Maximize ROI
Houses with hardwood floors and open concept are definitely attractive to buyers, but try not to focus on the current aesthetics of the house when you’re seeing it in person. Instead, you should be looking for potential room for improvement. Fix-and-flip pro Than Merrill shared with us his top three renovations that have a great ROI:
1. Steel Entry Door
Steel entry doors have historically given a great return on investment. Steel entry doors typically return approximately 101.8% of their initial investment upon resale. This means sellers are getting more than they spent on the door when they sell the home. Quality steel entry doors have great curb appeal, making it more attractive to buyers.
2. Replacement Windows
Replacement windows still deliver one of the highest ROIs on a remodel. It’s estimated that mid-range vinyl window replacements can return as much as 77.5% of their initial cost at resale. Wooden replacement windows, however, have a higher 78.8% ROI.
3. Kitchen Updates
The ROI on kitchen remodels varies depending on the scope of the renovation. On average, it costs $21,000 for minor cosmetic upgrades, to $125,000+ for an upscale major renovation. The average ROI ranges from 53.5% for a major upscale renovation to 81.1% for a mild kitchen update. The real benefit of a kitchen update is its ability to attract potential buyers.
Here are a few more renovations that fix-and-flip investors recommend:
- Refinishing floors: Hardwood floors are very popular. Refinishing old hardwood floors can have a huge impact on how buyer’s perceptions of the home.
- Tilework: Replacing dated tile in kitchens and bathrooms is a cost-effective and relatively easy repair that can greatly improve the look of a home.
- Adding a bedroom: This may be more work and may require permits, but adding a third bedroom into a two-bedroom home can yield a large ROI.
- Creating an open concept: Most homebuyers prefer open floor plans. These make the home look larger, are great for entertaining, and bring light into dark areas.
- Finished basements: Many cities don’t allow basement bedrooms without proper exits, windows, and closets. However, buyers are attracted to additional square footage they can use for a home office, family room, guest room, or man cave.
- Bathrooms: In addition to tiling, replacing bath fixtures, and increasing storage, can add value to the home.
7. Sell the Home
Selling your newly renovated home is exactly like selling any other home. The only difference is that time is money when you’re learning how to make money flipping houses. The longer the home is on the market, the more carrying costs you pay, which means less profit.
Evan Harris, co-founder of SD Equity Partners had this advice for selling renovated homes while paying carrying costs:
“The best piece of advice I can provide for new house flippers is to take the first or second offer you receive on each project. Time is a killer in this game and if you receive an offer that puts you in the black (makes a profit), take it and move on.”
– Evan Harris
Hire a Real Estate Agent to Sell Your Fix-and-Flip Project
The debate among fix-and-flip pros who aren’t real estate agents on whether or not to use a real estate agent is a fierce one. You’re going to have to pay them, but they will market your home to their network of buyers and to the entire real estate community on the MLS.
There are pros and cons to hiring a real estate agent. A major pro is more buyers will see your house and have the opportunity to make an offer. A major con of hiring a real estate agent is the extra expense of paying the real estate agent’s commission. However, the time-savings is worth it if you included this expense in your initial projections, making sure the project easily covers this cost.
Pros of hiring a real estate agent:
- They will put your house on the MLS and market it to their own buyers and other real estate agents.
- They will handle all marketing, showings, negotiations, and close the transaction.
- If they’re experienced, they can educate you on how to make money flipping houses.
- Many buyers are only looking with their agents so more buyers will see a property on the MLS.
- Buyer’s agents generally only work with qualified buyers, that means more qualified buyers considering your house.
Cons of hiring a real estate agent:
- The only downside to hiring a real estate agent is without careful advanced planning it can cut your profits.
- Though many sellers’ agents can discount their commission, the standard is still 6% of the sales price.
- An inexperienced agent can keep you from flipping houses for profit.
Making the Math Work
You can still profit by working with an agent. If you were selling on your own, you probably wouldn’t turn down a great offer from a buyer’s agent even if it meant paying them 3%. If you’re willing to pay that anyway, your seller’s agent only needs to get you 3% more for your house for their services to be essentially free. Their access to more agents and buyers also is time and money saved from a faster turnaround.
Sell the Fix-and-Flip Project Yourself
Investors who frequently fix-and-flip properties find it helpful to get their broker’s license so they can access the MLS and save money on commissions when selling. If you want to learn more about the (sometimes confusing) path to becoming a real estate agent, check out our guide on how to get a real estate license.
Here are some pro tips for a fix-and-flip investor:
Two Skills Every Fix-and-Flip Investor Needs
Alan Langston, Executive Director of the Arizona Real Estate Investors Association, shares the two critical skills every great real estate investor needs to know when assessing how to make money flipping houses.
1. The Ability to Accurately Assess the Cost of Renovating a Home
The point of fixing and flipping a house is to buy it, fix it, and then sell it for a profit. You need to be able to assess the costs associated with renovating a home accurately. If the ARV (after repair value) is not higher than what you paid for the house, you’ll lose money. You need to find out what repairs return a profit.
2. The Ability to Accurately Assess the Market Value of a Home
A Comparative Market Analysis (CMA) gives a reasonably accurate market value of a home. If you’re an agent, or an investor working with one, you probably know the property values in your area. If not, you can compare properties listed for sale and properties that have recently sold on some of the websites we mentioned earlier to determine current market values.
If you take the time to learn your local market and build relationships with professionals, you can quickly learn how to make money flipping houses. When you’re first starting out, focus on properties with simpler renovations, and deals that yield 30% more for a renovated home than what you paid.