Investment Tips: Flip and sell real Estate beginners’ guide- All you need to know

Flip and sell real estate: Fix and flip strategy When done right, can be a great way to generate income in real estate relatively quickly. In a short time, you can improve a distressed property and sell it for a substantial profit. However, this strategy carries many risks. A house flip can easily cost you thousands of dollars if you don't know how to sell your house quickly. The longer your fixed and flip property is not sold, the more money you will lose due to increased operating costs, and the more you suffer from negative cash flow.

The first step in getting a better return on your investment is to understand that selling an investment property isn't just about putting up a sale sign in the front yard and waiting for potential buyers to contact you. In this article, we're going to cover the main strategies that will help you sell your home quickly.

According to statistics from ATTOM Data Solutions, flipping homes accounted for 7.5% of all home sales in the U.S. housing market in the first quarter of 2020.

The sharp increase is due to the multitude of house flip shows where everyone believes they can make thousands of dollars with no prior real estate experience.

While this strategy isn't as easy as it is on TV, it can be a great way to get started in real estate investing. The key is having the right personality and resources to make money fast without committing to a rental property for long.

This article aims to help all those aspiring first-time flippers out there who are not sure where to start. For this purpose, it answers the following questions:

·       What is house flipping?

·       Pros and cons of flipping a house

·       How to start flipping houses?

·       What financing options are there?

·       How much money can you make with this real estate investing strategy?

What is House flipping?

House flipping is when someone buys a property and holds it for a short period of time and then sells it (the flip part) in hopes of making a profit. Instead of buying a home to live in, you will be buying a home as a real estate investment.

Sometimes flipping a home means the temporary owner has to do a lot of repairs or renovations, and sometimes they own the property until you can sell it for more than you paid for plus whatever you put in to fix it. The aim is to buy cheap and sell high, invest your own private equity in order to reduce costs and generate profits in a relatively short period of time, usually a few months or a year.

Pros of flipping a house

Might make a decent profit in some markets: In Q2 2019, a typical house flipping profit was $ 62,700, according to a report from ATTOM Data Solutions. A real estate agent can help you research price growth projections to find neighborhoods and homes that will give you the best return on your investment.

A part-time job or new full-time job: You can make as much or as little as you want, depending on how many flips you make. Spending more time on it will increase your income, but you will not have to work more than you want. Some people who flip houses eventually make it a full-time job, while others use it as an extra income to get more cash for a vacation, extra savings, or retirement fund.

Help Improve Neighbourhood Values: Flipping homes can help invert the values ​​of homes in areas where there were dilapidated properties and as such bringing prices of houses in these areas up. When you renovate and sell an old home, you’re giving it a new ‘lease’ on life. You’re taking what is often an eyesore and creating something new for a family to make memories in. You may also be improving the quality of life on the street and in the neighborhood where the house is located.

cons of flipping a house

Potential to lose a lot of money: No reward comes without some risk. While you can make a lot of money quickly, you can lose a lot of money just as quickly. One of the best ways to buy flip homes is through auctions or foreclosures. In such situations, you may not be able to do a full inspection and identify all problems in advance. It's a bet. Unexpected costs arise even with careful thought and planning, and critical issues such as cracked foundations, mold, asbestos, or the need for new piping can instantly reduce or increase your profit.

Fluctuations in the real estate market can also be a headache. If you can't sell your home quickly, you'll have to keep paying the mortgage. These are known as detention costs. Every day that you hold the house after it's ready for sale, you lose money.

stress: There is no getting around it: The move is stressful and time-consuming. Things always take longer than expected and nothing goes exactly as planned. You will make mistakes. The deliveries will be wrong. You will miss the deadline. The more experience you have, the less likely you are to get off the tracks, but experience only comes with more work.

Where to start: Still interested in flipping houses? If so, the first thing to do is to make sure you have saved enough money to keep your bills off for as long as possible while you start. You need a lot of capital upfront with no guarantee of when or if you will see that money again.

Get advice and information from high-quality resources. Ideally, find a mentor who can show you the ropes. Having someone to turn to when you reach your breaking point is extremely valuable.

How to Start Flipping Houses?

As you probably already know, house flipping is one of the short term real estate investment strategies. While this requires a number of different steps, these are done quickly one after the other. Real estate data shows that it takes an average of 180 days to flip a house.

However, this period varies widely based on:

·       Your experience and skills as a real estate investor

·       Your financial situation

·       The state of the local market: buyer’s market vs. seller’s market

·       Whether you are making the fixes on your own or hiring a contractor

·       Whether you are being a part-time or full-time house flipper

·       How many properties you are flipping at the same time

So, let’s take a look at the 7 steps that you need to go through:

#1. Set Up a Budget:

As with any real estate investment strategy, the first step in home flipping is deciding how much you can afford to spend on the investment property. This depends on your personal savings as well as the financing options available. We'll discuss the latter in the next section of this article. Right now it is important to remember that this strategy is not suitable for conventional mortgages. Hence, you need to look for alternative methods of buying a property.

Budgeting is of the utmost importance in order to optimize your property search and to implement the process in the fastest and most cost-effective way possible. Once you know how much to spend on real estate, you can focus your search for investment property for sale in that area. This affects both the real estate market and the type of property (single-family home, townhouse, condominium, apartment building, etc.).

#2. Find a Real Estate Property for Sale

The next step in flipping a house is to identify the best real estate market for this real estate investment strategy. There are a few factors to consider when making this decision:

·       Your Budget: Run a neighbourhood analysis to find areas of the local property market where the median property price is in a range you can afford. As this is a very active strategy, it is important to focus on the local housing market. You will need to be close to the property that you buy in order to facilitate your work.

·       The State of the Local Housing Market: As we will discuss shortly, the most appropriate property types for flipping constitute distressed properties, foreclosures, short sales, bank-owned homes, homes of motivated sellers, and other properties in a sub-optimal state. This means that in your analysis of the property market, you should select an area with limited new home construction activity and an abundance of older and somewhat neglected properties for sale.

·       Real estate activity: To simplify the final part of the process - selling the fixed property - find a real estate market that is in high demand from home buyers and property investors.

When it comes to flipping homes as mentioned above, it is best to focus your investment property searches on different types of distressed properties. Basically, you need a property that needs major repairs to add dramatically to the value of your home. There are many places you can look for such properties. Some of the most popular options are courthouses, bank websites, foreclosed real estate websites, real estate agents, and others.

#3. Analyze the Profit Potential

The third step in flipping a house is doing some math. No problem, you don't need advanced math skills to analyze the profit potential of the properties you have chosen. As with other real estate investment strategies, you need to select some properties to analyze in order to find the most profitable opportunity for a new real estate investor.

Here are the top numbers to calculate when analyzing investment property:

Asking Price: This is the price you should offer the landlord based on the median property prices in the local housing market and the current condition of the property. Remember that to make money on real estate with returned homes, you have to pay below market value. However, this shouldn't be a problem as you are looking for distressed properties like foreclosures, homes from motivated sellers, and other properties in need of repair.

Repair Costs: Unless you have a lot of property and real estate repair experience, consider consulting an experienced contractor. You need to decide how much money to spend on fixing and repairs to get the property in decent condition. Remember to focus on renovations that are inexpensive but add significant value to the property. This is one of the key factors for the success of the fix and flip strategy. When working with a contractor, you should also consider their fees. While hiring a contractor for the first time may seem like an unnecessary cost to the for first time house flippers, keep in mind that it will greatly reduce the time it takes to complete all of the work on the property and allow you to keep your job full time.

After Repair Value (ARV): The ARV concept refers to the price of the house that you would like to flip after all fixes and repairs are done. You should estimate the final sales price of the home you intend to buy before deciding whether this is a profitable real estate investment opportunity. The value after the repair must exceed the sum of the original purchase price and the repair costs, as the difference is the profit you make.

#4. Negotiate the Price with the Property Owner

Once you've decided which property is the best for your house flipping, it's time to contact the owner or seller. A good asking price is a real test for the negotiation skills of a house flipper. You need to stay focused and not exceed the highest price that will make the transaction profitable for you after the repairs. Don't get carried away with the sole purpose of buying a property.

If you can't get a fair price with the first property owner, move on to the second-best option that emerged from your investment property analysis. Once you have reached a consensus with the owner on the sale price of the property, you must complete all of the procedures related to buying the property.

#5. Repair the Property

Depending on your skills and preferences, this could be the most exciting step in home flipping: namely, repairing the property. In some cases, repairs just need to be simple and cosmetic before you can resell the property at a significant profit margin. In other cases, you may have to rebuild the property almost from scratch.

It is therefore extremely important to know exactly what you are getting yourself into before you start. Visiting the property with a skilled builder and even a home inspector is a must. This way, you will avoid unpleasant surprises once you or your contractor start working on the property, delays, and increasing your overall costs.

At this stage, you should only stick to the originally planned repairs and corrections. Don't be tempted to over-repair the property as you won't be the one who will eventually live there. Throughout the process, remember to treat the home as an investment property rather than your own home.

#6. Market the House for Sale

Once you've completed the repairs and the property is in decent, livable condition, it's time to move on to selling your home. The best real estate marketing strategy, in this case, is to market the property through your own real estate network. However, if you are a newbie real estate investor, you may not already have such a network.

The good thing about marketing when you flip a home is that you can sell your home to both traditional and Airbnb rental investors and buyers.

If you are considering making a living in another home, it is a good idea to develop relationships with other property investors in the local housing market. They are always looking for profitable opportunities and have more money to spare than the owners.

Thus, as a real estate investor expands their rental property portfolio, they can become a permanent source of sales for your repaired homes.

#7. Negotiate the Sale Price with the Property Buyer

It is time to negotiate again. If you are selling the property to an experienced real estate investor, he/she will have a pretty good idea of the home's value in the local market. It is therefore important to have accurately estimated the ARV and to ask for a price that does not significantly exceed the value of the home.

When selling to first-time buyers, you may have more leverage than him/her as you are the best-informed party in the real estate transaction. However, you need to take into account that home buyers have limited financial resources and are generally unable to pay cash.

And now you have learned how to flip a house in 7 steps!

But before you can make an educated decision if that’s the right way to make money in real estate for you, we should find the answers to a couple of more questions related to flipping houses.

What Financing Options do I have for House flipping?

As a beginner house flipper, you are right to be concerned that you do not have enough money to complete this real estate strategy. After all, in addition to buying real estate (even if it's in trouble), you need to fully repair it before you market it.

To allay the fears of all new property investors, let's take a look at the options available to finance the house flip:

·       Cash: If you have enough savings in the bank, flipping a house can be a quick way to grow your cash flow in a low-risk manner.

·       Hard Money Loans: Since most first-time flippers don't have enough cash and traditional mortgages don't apply to such short-term real estate investment strategies, you can resort to hard money lenders. These are specialized financial institutions and corporations that lend money to various types of property investors, including house flippers, for a short period of time. Therefore, the interest rates are significantly higher than on conventional mortgages. However, since the loan term is short, the total amount of interest is not a large sum. The hard money loans are secured by real estate.

·       Private Lenders: A personal loan is a bit like a hard money loan, but the lender is an individual. This is a real estate investor who is looking for an absolutely passive way to make money in real estate, thus borrowing money from other investors to buy, repair, and return real estate. In many cases, this can be someone from your own network, e.g. a family member, relative, or friend. The conditions with private lenders are more flexible than with hard money lenders so that you can negotiate the loan term and the interest rate.

·       Real estate partnership: Another arrangement that is similar to borrowing from a private lender is to form a real estate partnership. In this agreement, you need to buy, repair, and sell a property while the other partners finance the property transaction.

So if you're wondering if you can really flip a house with no money, the answer is yes. The key is to find a good financing source such as a hard money lender, a private money loan, or a real estate partnership.

How Much Money Can You Make with This Real Estate Investing Strategy?

Last but not least, you need to know how much money to expect before you can decide whether flipping houses is the right strategy for investing in real estate.

·       What Is the 70% Rule in House Flipping?

If you've done research on how to flip a house, then you must have read the 70% return rule. While this rule is pretty simple, it will ensure that you will benefit from such a property transaction.

The 70% rule says you shouldn't be paying more than 70% of the ARV minus the estimated cost of repairing the house.

Let’s have a look at a quick example:

You are looking at a distressed property. The house will need $20,000 in repairs to sell for $150,000 after fixing. What’s the maximum price you should agree to pay for this property?

70% of the ARV = 70% x $150,000 = $105,000

Maximum offer price = $105,000 – $20,000 = $85,000

So, you should pay about $85,000 for the house initially.

·       What Is the Average Profit on a House Flip?

Another important factor is how much you can make per trade-in reverse houses. Average gross profit is around $ 60,000, according to House Fins' national property data. Meanwhile, the average net profit on a house flip is $ 30,000.

If you think about it, making $ 30,000 net in a few months is pretty good business for a real estate newbie. However, you have to keep in mind that you cannot expect such a profit from your first house flip. It will take a few tries to build the right team of entrepreneurs and the necessary real estate network of real estate sellers and buyers and to master the process.

·       How much does the average house-flipper make?

How much money you can make as a house flipper and whether you can make it a source of livelihood depends on your background and personality. If you can do multiple deals at once, build a strong team and network, and close deals quickly and efficiently, then you can easily be flipping houses for a living. You can make a few hundred thousand dollars per year.

CONCLUSION

     Flipping houses is one of the best real estate investment strategies for making money in the short term. But it is also one of the most active ways to make money in real estate. As a beginner, you should carefully weigh the pros and cons before deciding whether to become a house flipper