House flipping can be a lucrative business opportunity when done right. With so many home flipping shows today, who won’t be inspired to start a house flipping business? But before delving into step by step tips to a successful house flipping venture, let us learn more about the term house flipping.
What is House Flipping
In a nutshell, house flipping includes buying a house, revamping it, and selling it for money. What house flippers do is they buy homes that most typical homebuyers are not willing or able to renovate, and enhance them in a way that meets the demand of the buyers.
Homebuyers, particularly millennials and gen x-ers, prefer to buy move-in ready houses. To be considered a house flip, the property must be bought to resell it fast on the market. It usually takes a couple of months to a year between the time of the purchase of the property to its sale.
There are two types of house flipping in the real estate market. The first involves purchasing a property that is projected to increase its value upon proper repairs and updates. Upon completion, the house flipper with the investors can make money off selling the house for a much higher price.
The second type involves the purchase of properties in a market with a swift increase in home values. Real property investors do not make any updates on the houses, and hold on to it until it is high time to resell it at a greater value to make a profit.
For those who are not in the real estate business, what we know of house flipping is the first type. We often see house flippers on HGTV turning hopeless case houses into marvels. We even encounter characters who are house flippers on movies and series, such as that of Netflix’s The Haunting of Hill House.
Although house flipping may seem easy on-screen, it does not work that way in real life. A house flipping business not planned properly will end up in disaster and significant loss of investment. No one would want that to happen.
Tips for a Successful House Flipping Business
We have gathered tips from experts to guide you in making a wise decision in your house flipping venture.
Good Credit Score
It would be very difficult for you to get into a house flipping business with a bad credit score. Unless you are someone with millions in the bank, you would need some form of financial assistance to pay for the property and all the essential renovations in the house.
Lenders would not be keen on giving you the best mortgage rate, particularly if you need a loan for a risky house flip. So, if you have a lousy credit score, start working to make it better. Pay down your debt, pay bills on time, and maintain a low credit card balance.
The second thing to do when you start a house flipping business is to line up your financing options. Figure out whether you would have to buy the house with cash, borrow money from a bank, or apply for a home mortgage loan. Ensure you understand the particulars of the home financing of your choice.
Create a Business Plan
Next on the line is to create a budget and a business plan for your house flipping venture. It does not need to be an elaborate one. All you have to include are a timeline, a budget, and a project scope. By laying out your plan in the early stage of your business, you can prepare for any contingencies for any unplanned events to come.
Work With Reputable Experts
To help your vision become a reality, you would need to work with a team of experts. It would be best if you built a network of contractors ranging from a general contractor to an HVAC expert. You would also need a reputable real estate agent who can help you sell the house fast on the market.
Find a Good Location
While no doubt you can significantly improve a house to make it look desirable to homebuyers, a house still would not sell if it is in a bad neighborhood. Before flipping a house, research for the best location to look for properties to flip. You may start with your local city and neighborhood and expand all the way.
Adhere to the 70% Rule
Expert home flippers follow the 70% Rule in selecting a property to flip. According to this principle, you should not pay any more than 70 percent of the after repair value of a home (ARV), subtracted the cost of necessary repairs. Doing so would help avoid overpaying for the value of the house you are flipping.
An example would be a home with an AVR of $200,00 and necessary repairs costing $30,000. If the AVR is multiplied by 70 percent, then its product subtracted by the necessary repairs, the difference would be the amount of money that a house flipper should pay for the value of the property.
By taking these necessary steps, you will surely mitigate, if not altogether avoid, committing mistakes in the house flipping business.