How To Flip A House For The First Time – The Beginner’s Guide To House Flipping

We’ve been made to believe that flipping a house is simple, if not downright easy. An endless barrage of house flipping tv shows present the process in neat little timeslots filled with montages of drilling and demoing, and finish with a satisfying “SOLD” sign. If you’re here then you’re probably well aware that in reality, however it’s not quite that simple.

If you are interested in the idea of flipping houses, want to learn how to flip your fist house, get an idea of the average cost and profit on a house flip, and want to see if house flipping could be right for you, we’ve put together a short summary of the main points you need to know and consider.

how to flip a house for the first time

Know What You’re Getting Into

Finding the right house to flip, first and foremost, requires patience. Be prepared to sort through a good number of properties before you find the right one. Before committing to a purchase, make sure you’ve had the home inspected to ensure that there are no hidden problems that will bite into your profits or even turn your investment into a money pit. The average ROI for home flippers is between 10-20%, and as you gain more experience you will be able to turn over more profitable flips. On average, it takes 90 days from start to finish to flip a house, but this is also highly dependent on the specifics of the flip and the complexity of the repairs. If you’re just starting out, start small – cosmetic defects and simple upgrades like paint and minimal landscaping.
average profit on house flip

Look At The Costs

Home flipping is a jigsaw puzzle of costs, which is why it’s so difficult for first time home flippers to gauge overall costs and expected profit. The biggest cost outright is cost of the house itself, and for this reason it’s extremely important to know ahead of time how much you should spend on the house.

For a rough calculation to see if a property might be a good fit, start by estimating the after repair value (ARV) of the house by comparing it to similar properties that have sold in the past 90 days in the area. Take 70% of this value and then deduct your estimated repair costs. This will theoretically give you a profit margin of 30%, and provide a substantial buffer in case things don’t go quite as planned and you find yourself spending more on repairs than you had planned. In other words, you should not spend more than 70% of the home’s ARV in cost and repairs.

Other costs associated with house flipping include repair costs, carrying costs, and the cost of actually selling the home. Repair costs should be calculated as accurately as possible prior to purchasing the house, preferably with the help of professionals like home inspectors and contractors. Try to build up a good rapport with tradesmen and contractors as you move into the house flipping business – a good working relationship can make a huge impact on your bottom line. Carrying costs, on the other hand, refer to the costs of owning the house for a certain time period. Carrying costs include insurance, taxes, and utilities, and can vary wildly depending on the location of the house. Finally, there are the costs of listing and selling a home. These costs include realtor fees, escrow fees, closing costs, and other expenses associated with selling a house.
cost to flip a house

Know Your Financing Options

Just like any house purchase, purchasing a house with the intention of flipping it will likely require some financial backing. Traditional home loans are not usually an option, as they come with a multi-year mortgage and other terms that assume you are purchasing the home to live in for at least several years. If you’re buying a house to flip, your two main financing options are hard money loans or HomeStyle loans.

Hard money loans are commonly provided by private individuals, with the property they are used to finance acting as collateral. Hard money loans are often a faster route than traditional loans from banks and credit unions, and do not require a credit check. These loans are issued for the short-term (no longer than 5 years), and their interest rate is accordingly much higher than traditional loans. Their chief advantage is that they offer quick, easy money when you need cashflow to get your house flip moving.

Your second option is a HomeStyle loan, a Fannie Mae-backed loan intended for home buyers or homeowners to finance upgrades to their properties. HomeStyle loans offer lower interest rates than home equity lines of credit and similar private loans, sometimes as low as 3%. You can borrow up to 75% of the home’s projected ARV with a HomeStyle loan, which will can cover the purchase cost of the home almost entirely in many cases. These loans do have some drawbacks, however, as they come with a long list of terms that dictate what and how you can repair the home. For instance, HomeStyle loans impose a limit of 10% on any DIY work and don’t allow for structural changes to the home. They also impose a timeframe in which you must finish the renovation, and require a minimum credit score of 620 to apply. HomeStyle loans are a great option if you have the credit and are planning to do a moderate flip, but are less ideal for those who wish to have more creative and hands-on control on the flip.