Flipping Houses

Flipping Houses

Definition

The process of purchasing a home for usually a below-market price, renovating or refurbishing it, and selling it on the market relatively quickly for a higher price to turn a profit.

Flipping Houses and Foreclosures

Flipping House

Flipping houses refers to the act of buying a fixer-upper home, rehabbing it and then selling it for profit. This real estate investment strategy has become very popular in recent years as more television shows and books have been released on the topic. However, it is important to note that inexperienced people who don't do their research up front can find themselves in a financial mess if they don't know how to go about the process properly.

One of the best strategies to use when flipping houses is to find properties that other people are discouraged from buying due to the need for repairs. Most home buyers are looking for a move-in ready property, so these fixer-upper houses are off their radar because of the extra finances that would need to be invested to renovate the property. This gives investors a great opportunity to find some "diamonds in the rough" that can be rehabilitated and brought back to their former glory.

One type of property that lends itself well to being flipped is a foreclosure. These are properties where the homeowner has stopped paying the underlying mortgage payment. Often, these properties are taken back by the bank and listed on the market at a reduced price. However, it's important to note that all foreclosures are not priced competitively. In fact, sometimes the lender will list the property at the fair market value even though it needs substantial repairs. The great thing is that lenders are typically negotiable on their price.

Another way that a person can profit from flipping foreclosures is by purchasing them on the courthouse steps or at auctions. Because the bank is trying to liquidate the assets instead of taking it back into their inventory, it's possible to get a really good deal on foreclosure auctions. Of course, you do need to know the rules about how you have to pay for these properties as it typically involves bringing 100% of the purchase price upfront in cash within a day or so of the bidding.

Profiting From Flipping Houses

Not everyone makes a profit when they flip a house. This is because some people don't do the necessary work and research up front to make sure that they understand all the repairs and renovations that will be required on a particular piece of property. In order to ensure that you make as much money as possible on a potential flip, you need to understand the market around the house and what comparable properties have sold for in recent months. You also need to have a good handle on how much the repairs will actually cost. Getting estimates is one great way of making sure that you have covered all your bases, however you need to add a little padding in your renovation budget as something is bound to come up that you aren't expecting.

Some flip properties will only need minor repairs, so you can expect a smaller profit margin on those houses. However, there are also properties that need major repairs. These are homes that few people are willing to touch, and this gives you a great opportunity if you're willing to take on a challenge. It's very important to make sure that you create a list of all of the repairs that need to be done so that you can get detailed estimates.

With foreclosure properties that you purchase on the courthouse steps, you likely won't have had the ability to see inside the home. This can make the process a little bit like playing roulette. You really don't know what you're getting yourself into, so you have to make sure that you have the funds necessary to make the deal profitable for you.

Most of the properties that you want to look for involve a lot of cosmetic repairs, but not many mechanical or structural ones. These properties are often passed over by typical buyers because they don't want to get into the hassles of bringing the home up to today's modern standards. However, these are often some of the least expensive renovations that you can make so that you can still achieve a good profit.

Getting Know How to Start Investing on the Flip Market

There are several different ways that you can get the knowledge that you need to become a successful house flipper. House flipping without this kind of knowledge can be quite dangerous to your bank account. Here are some ideas to get you started:

  • Join your local real estate investor's association so that you can attend classes and trainings with like minded investors. You can also form partnerships with other investors who are just getting started or even have more experience than you do.
  • Buy books and/or courses related to the subject of house flipping so that you can get up-to-date on the different kinds of methods being used.
  • Find a more experienced house flipper who can teach you how to find cheap houses to flip as well as a host of other information to get you started.

Care to be Taken Before Putting Flip a House

Here are some important things to note before purchasing flip listings:

  • Make sure that you have finances in reserve in case things go astray that you need to take care of. For instance, you may find that another repair needs to be done that you haven't budgeted for. Always keep some padding in your budget for this reason.
  • Make sure that you have reserves set aside in case you end up holding the house for longer than you expected.
  • Form relationships with other rehabbers and contractors who can help you get your home up to standard so that you can sell it.
  • Always get a home inspection even if you think you've seen everything in the home. It's important to make sure that someone certified to do home inspections has gone through the house with a fine toothed comb so that you don't buy a money pit.

How to Finance Flip Houses

There are several different ways you can finance flip houses. For one, you can use creative financing ideas such as taking a house under a lease option or lease purchase. You can also talk to the seller about taking over the payments subject to the existing mortgage. You can use other types of financing such as private or hard money lending as well. Some people will even take out a second mortgage or home equity line of credit on their current home in order to get the money to purchase flip houses for sale.

Some people will remove the money from their investment account and take the penalties hoping for a greater return on their investment. There's also an FHA rehab plan, but it is specifically for people who plan to owner occupy the property. Obviously, this doesn't work for your typical investor. In addition, there are certain FHA regulations specific to flipping, so you will want to make yourself aware of that if you do plan to owner occupy the property.

FAQ about Flipping Houses

  • There are a number of different things that need to be kept in mind when you want to start making money flipping homes for profit. One of the first steps to making this work for you is to find homes and properties that are in foreclosure. You can then invest the money into these properties, and begin making money almost immediately because there is generally equity that is built into them. At times, a little bit of repair may be necessary in order to get a home in a salable condition, but the work that needs put into it tends to make you additional profit.

Go to the Foreclosures FAQ page

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