Flipping Houses For Dummies Cheat Sheet
“Flipping houses” sounds as easy as 1-2-3: 1) Buy a house significantly below market value, 2) fix it up, and 3) sell it. However, when you actually try to flip a house, you soon realize that it’s tougher than it sounds. The beginner faces several hurdles, not the least of which is tracking down properties with potential and buying them for cheap. This Cheat Sheet brings you up to speed in a hurry on house flipping basics and helps you clear the most common hurdles.
Finding Houses to Flip
The first step in the house flipping process is the most crucial to your success — finding a property or properties with profit potential. Following are some ideas of where to look:
- Look for dontwanners in your neighborhood — vacant, unkempt homes the owners “don’t want.”
- Search on Auction.com.
- Read local foreclosure notices, available through your county’s sheriff’s office or register of deeds.
- Contact banks to find out about real estate owned (REO) properties.
- Network with probate, bankruptcy, and divorce attorneys.
- Search HudHomeStore.com.
- Team up with a Realtor.
Deciding How Much to Pay for a House to Flip
A key first step to profiting from a flip is not to pay too much for a house. When deciding how much to pay, estimate the amount you can reasonably sell the house for after fixing it up, and then subtract your expected costs, which include the following:
- Purchase price
- Cost of repairs and renovations
- Any back taxes due on the property
- Holding costs (property taxes, utilities, insurance, interest payments, homeowner association fees, and so on for the time you expect it will take to buy, fix, and sell the house)
- Any agent commissions and closing costs when selling the house
Aim to earn at least a 20 percent profit after subtracting all costs.
Financing Your House Flips
Flipping houses is an expensive endeavor. You need money to purchase the property, renovate it, pay the bills for the duration of the project, and sell the property. Where will you find the money to finance your house flips? Here are a few sources to consider::
- Your own savings
- Home equity loan or line of credit (on your current home)
- Bank loan (you’ll need cash for a down payment)
- Personal loans (from friends or family members)
- Government loan (if you’re buying from a government program)
- Hard money loans (from investors)
After you purchase a property, you may be able to finance the repairs and renovations by refinancing to pull equity out of the property.
Doing a Quick House Flip
When you’re just getting started, be sure to pick an easy property to flip — a great house that’s merely cosmetically challenged. Then make the following improvements:
- Clean everything thoroughly.
- Repaint the interior walls, all white.
- Install new wall-to-wall carpeting where it makes sense to carpet.
- Replace all light-switch and outlet covers.
- Spruce up the landscaping.
The idea is to freshen up the house on the cheap to give it a nice, clean, manicured appearance.
If possible, time the sale for spring or fall, when demand is typically higher or be prepared for the house to linger on the market if you plant your For Sale sign in the winter.