To a beginner, the procedure of flipping a house may sound as simple as 1-2-3 at first:
- Buying a tattered home by paying a small amount of money.
- Redesign and fix it up.
- Resell it to another consumer at a higher price.
Nonetheless, when you actually attempt to go through the procedure, the reality check hits you directly in your unnerving source of confidence.
Yes, you’ve guessed it right.
Flipping a house is, indeed, pretty challenging. As a beginner, even tracking a place and buying it without paying too much will seem extremely tricky to you.
Thus, to offer you a helping hand, we have conjured up a guide and addressed each and every house flipping-related concern elaborately. Let’s jump right into it.
How To Find A House For Flipping?
Finding a property with high-profit potential is the first step of house flipping – and it’s pretty crucial, especially during the initial phase. Here’s how you can do it –
- Opt for a “dontwanner” (unkempt properties that owners want to sell) in your locality.
- Go through foreclosures (can be found in the register of deeds or the sheriff’s office).
- Talk with a bank to learn about REO (real estate-owned) properties.
In some cases, teaming up with a realtor or talking with a bankruptcy attorney can be beneficial for you as well.
How To Buy A House For Flipping?
When it comes to buying a house, most people tend to opt for the 70% rule. In this case, you will only use 70% of your overall budget to purchase the housing for your purpose.
The following example elaborates how the procedure works –
Let’s say the ARV (after-repair value) of a house is USD 300,000. You have to invest USD 40,000 to repair and redesign the same.
With the 70% rule, the cost of the house will be USD 210,000. Now, when you subtract the repair price from it, that leaves USD 170,000 in your bucket. Ideally, it would be best if you did not spend more than this price range while buying a house for flipping.
How To Finance The Flipping Procedure?
If you have an excellent financial backup, you can always finance the flip with your own savings. However, if you’re starting from the ground, you can use the following sources –
- Bank loan (you have to provide a small amount of cash as a down payment)
- Line of credit or home equity loan (on your own residence)
- Government loan (if you are buying through a government program)
- Hard money loans (from organizations or investors)
If possible, you can also use OPM (other people’s money) and keep the investment property as your collateral. It will help you shield your assets and invest in other houses that wouldn’t be possible otherwise.
Tips To Avoid Common House-Flipping Blunders
Being overenthusiastic about your new house-flipping project is pretty natural. However, it doesn’t mean that you’ll lose sight of something simple yet critical. Here, we have shared some tips to help you avoid some prevalent blunders that occur during house flipping.
- Don’t fall for a get-rich-quick or no-money-down deal. You should also avoid getting into partnerships that prompt you to provide most of the money. These schemes are mostly scams.
- The housing segment works almost like a stock market. It experiences various ups and downs virtually all the time. So, make sure to research the current market situation properly before investing in a project.
- Stop overanalyzing everything, especially while going through a house-flipping scheme. Instead, when you find an excellent deal, make sure to act as quickly as possible. Even if you aren’t sure, we’ll still ask you to at least make an offer.
- If you’re going to sign a contract, make sure to go through the same thoroughly. Otherwise, you may end up losing sight of the obvious hidden prices or rules. Also, be sure to check if the contract has a weasel clause or not.
Aside from the technicalities, the manual procedures of a house-flipping project are pretty complex. Therefore, being careful and going for a steady approach should be the key to your success.
In any case, if you want to know anything regarding the topic, make sure to reach us in the comment section below. We’ll try to answer you as quickly as possible.