Beginners Guide To Flipping Houses : Its Not As Easy As "They" Make it Look.
So lets start with the basics.
Most people look at houses just as a place to live, houses are also pieces of property that can be bought & sold for profits.
So if your just getting started in this investment "game" there are few things you'll need to learn before you can begin to take action.
Whether you watch HGTV or read the internet, these folks make this game sound much easier than it really is. As with any business that is not an innovative new strategy (start up) there are proven steps/procedures to take in order to lead you in the right direction.
No matter what TV show you watch or blog you read, the best way to learn how to create a successful business in this industry is to get out there and take action, make mistakes, earn respect & be educated enough to be able to minimize your risk when these mistakes occur.
The steps that we will discuss will give you an oppurtunity to shorten the learning curve, avoid making huge mistakes and teach you how to generate a profit through this vehicle of real estate investing.
The Different Types Of House "Flipping"
Before we get to deep into the necessary steps in getting your first "distressed" property bought, rehabbed and sold for a profit, we should probably discuss the different types of "flipping" homes that are present in the industry today.
Distressed Quick Flips : A common way of flipping homes in prior years was to purchase a deeply discounted home from either auctions, foreclosures or bank short sales & turn around and sell them immedietly to a homeowner. This kind of flipping is based on quick sales & quick profits. This vehicle comes with a little less personal risk but also results in much less potential profit. There is no value add to the end user just acting as a middle man in moving the deeply discounted home.
Wholsaling: The concept of "flipping" a contract to another investor or home owner for a fee. Many investors have built lucrative businesses around this model and can be used successfully if you have the right systems in place. (ex) Putting a home under contract for 35,000 (no money down) then flipping or selling that contract to an investor for 42,000. You take the spread of 7,000.
Rehabbing: This is the vehicle we will discuss in detail but in simple terms you are buying a discounted property, fixing the home up & reselling at market value.
House Flipping Steps To Complete Your First Deal
1) Commit To The Flip:
The first step that you will have to take in any business is commitment. Making money in any aspect of life is never easy, so this is no different. It is easy to watch a TV show or read an article and believe that this business is simple or easy. You have to make the decision that you are going to learn everything you need to know to take the proper steps to succeed.
The next step is to get educated on the topic. Educating yourself in life something that is a life long pursuit and should never stop. As with any endeavor it is necessary to educate yourself on the basics before taking the initial steps. By educating yourself on the basics you will limit the oppurtunity of taking a large loss early in your business and be able to adjust when mistakes arise. There are several different ways to begin your education but I believe the first step you should take is reading "The Book On Flipping Houses" by J. Scott. This book will lay out the steps in detail to conquer your first flip. Other good books to read on this subject are "FLIP: How to Find, Fix, and Sell Houses for Profit" & "Flipping Houses for Dummies". There are several popular blogs and podcasts out there that go over different aspects of the business in detail that will also benefit you. Do not get caught up in trying to learn every little thing about this business. Your greatest education is going to come when you are involved in the process and taking action. We just want to educate ourselves enough to get to the action stage.
3) Determing Your Financing:
One of the key components in this business is going to be your access to funds, where you will get these funds and how quickly you can gain access to these funds. Determine how much cash you personally have to invest and then decide which route you will take to get your hands on additional funds. When rehabbing homes, usually the best financing route to take is having access to Cash. This will allow you to have less contingencies involve, close quicker and get deeper discounts.
One good way to fund your first deal is by having an equity partner. In this situation your investor/partner will be funding the complete project & rehab costs with expectations of recieving 50% (negotiable) of the profits. This will allow you to not have to come out of pocket and gain the experience without risking all your money.
*Although losing investors money can be more stressful than losing yours*
4) Market Research- Analyze Your Intended Farm Area:
Next you will want to analyze your surround areas and locate the best areas around you to flip houses. Every market is different so be sure to have a good feel on your local prices, neighborhoods, school districts, crime rates, popularity. Personally I would start by analyzing a small farm area (a zip code or two) and as you gain more experience you can begin to expand.
Consider these questions:
How much are the average homes in this neighborhood/ zip code selling for?
Are Homes selling in this area?
How much are foreclosures/REO's selling for?
What property types/locations/ bedrooms/baths are currently popular?
Are there other investors marketing in your farm area? (good thing if they are)
Get a good feel for the types of properties in your area. Try and walk through a couple houses that are for sale in your area and see what kind of finishes they have and what you should expect to be putting in your homes.
5) Build A Team
There are several important phases of your business but to me this phase is right up at the top. The team you develop is going to play a large role in weather you make money or lose money on a specific project. This team will help you find, fix and sell your properties. They will help you delegate certain areas of your business that are necessary so you can spend time working "ON" your business, not "FOR" your business. They will help you speed up the learning curve and will be able to relay invaluable information in order to create a successful business.
Your team will consist of:
Real Estate Agent
Wholesalers, Bird Dogs
6) Define Your First Deal
Before you begin your marketing campaigns, you want to have some peramiters to work off so you can target your marketing to persective homes. Here you will learn your education and your market research to determine:
What types of homes you want to buy
How many bedrooms/bathrooms
What square footage
What your minimum and maximum price range will be
Now you will have a specific criteria that you & and your agent can work from and you will now have a better idea of what homes you want to market to.
7) Marketing Efforts