6 Steps: How To House Flip
6 Steps To Start Your Own House Flipping Business
1. Create a House Flipping Business Plan
When you’re learning how to buy and flip houses, you need a business plan with definable goals, strategies, analyses and funding. This house flipping business plan can help you figure out how many projects you need to complete to achieve your goals. It also encourages lenders to take you more seriously and puts your profit expectations and exit strategies on paper.
2. Hire the Right House Flipping Professionals
House flipping professional include attorneys, accountants, realtors, and contractors. You can find them through investor referrals, online searches and reviews and investment groups.
The right house flipping professionals help you better understand how to get into house flipping, help prevent mistakes and ensure your business is following legal guidelines.
Not all of these professionals are needed right away and most of them are hired per project, instead of as an added payroll expense. If you have already started on a project, it is fine to hire a general contractor first. If this isn’t the case, then it is recommended to make an attorney your first hire. A REALTOR can be hired when you start looking for houses and specialists like an architect only need to be hired when the project requires it.
Some important house flipping pros you may want to hire include:
Attorney: Choose an attorney that specializes in real estate. He or she draws up contracts and makes sure your business is in compliance with local ordinances.
Accountant: Help set up your business structure, file taxes for your fix and flip business, track your expenses and know what items are allowed to be written off.
Realtor: Gives you accurate market data for the neighborhood you are flipping in. They have industry knowledge and provide more accurate information than a real estate website. In most states, they work on commission and are paid by the seller.
General Contractor: Make sure that the GC is licensed in the city you are working in so he or she can oversee your rehabs. Without a GC, you have to oversee the job site yourself. This increases your timeline and allows room for errors; both of which cut into profits.
Landscaper: Hired on an as-needed basis. Without a landscaper, your home may lack curb appeal, which deters buyers, thus increasing the time your home sits on the market. This eats into your carrying costs and lowers your ROI.
Architect: They are only needed for larger projects like adding on rooms or changing the home’s structure. If an architect isn’t used, the structural integrity of the house could become compromised, which can end up costing you thousands of dollars.
Handyman: Hired for simpler jobs like painting or patching holes. This person doesn’t need to be licensed. By using a handyman, you don’t have to spend the time and effort on a DIY project.
Assistant: After you have met with the right professionals and have a few rehab projects under your belt, you may want to hire an assistant to help with everyday business activities. An assistant is for the house flipper that is doing five or more fix and flips per year and is truly running a house flipping business.
When hiring professionals, referrals are your best, most trusted source. If someone you know has had success with this person, it’s likely that you can as well but it’s never a guarantee. Friends and family can offer referrals but the most valuable ones come from other investors and the investment groups that you join.Make sure that the professional knows how to do the specific job you are hiring for. This saves you money in the long run. You don’t want to pay to have the same job done twice if the first time is done poorly.
3. Set Up Your House Flipping Business Operations
House flipping business operations include choosing an entity such as an LLC, registering your business, opening separate bank accounts and getting a business credit card. You can set these business operations up with the help of professionals like an attorney and an accountant. These business operations keep your business organized, efficient and legal.
4. Find Financing Sources for Your House Flipping Business
Assuming that you’re not using all cash, there are typically three ways you can finance your house flipping business, which are hard money loans, rehab loans and investment group loans. However, you probably want to use a hard money or rehab loan because they’re more prevalent and can close quickly.
5. Identify the Right Properties to Fix and Flip
Once you have a business plan, a fix-and-flip team, operations set up and financing in place, it’s time to start identifying the right properties to fix and flip for a profit. Keep your budget and timeline in mind and remember that no matter how good your business plan is, you still need to identify the right property to meet your ROI. The neighborhood should be your main focus because you can change the property but not the neighborhood.
6. Buy, Rehab, Market & Sell Properties
You’re now ready to buy, rehab, market and sell properties for a profit. Generally, it takes 15 to 30 days to close on a property using all cash or a hard money loan. Then, it may take about 30 to 120 days to rehab the property, depending on its condition. You should start marketing the property when the rehab is complete enough to take photos. The property may sell in a few days or take months, depending on pricing and the local market.
Most house flippers start with free online sites and REALTORs to buy, market and sell their property. A REALTOR is able to assist you with finding a house to buy, negotiating the sales price and helping you sell the house once it’s rehabbed.
Now that you know how to find the property, you just need to rehab it, which is where your house flipping professionals can help. Your general contractor rehabs the property, and it is important to work with him or her to stick to a timeline because every day that you haven’t sold the property is another day of paying carrying costs. The faster you complete the renovation, the faster you can market and sell the property, which means hopefully making a profit and keep property flipping.