Flipping Houses: 10 Tips For Success; From Start To Finish
Updated: Feb 26, 2019
Congratulations on your decision to begin flipping houses.
For this post, when we speak of flipping houses, we are talking about buying a property at a discount, adding value and reselling for a profit.
If you have done any reading on this topic, you know that different flippers have different strategies.
Some guys like to buy a house, live in it and flip it in order to avoid capital gains tax.
Some guys like to buy a house, make the repairs themselves and sell it.
Others like to buy a house and outsource the labor to turn these properties over faster.
No matter what strategy you decide to use, these tips will lead you to a nice profit, whether it is your first flip or your 100th.
We have all seen these house flipping TV shows, where these flippers make a ton of mistakes, come across a tremendous amount of unknown issues and still some how churn a large profit. This makes for nice TV, but it is not part of any reality that I have ever dealt with.
When you first start out flipping houses, you have to understand that any profit that you make is a win. What you are gaining throughout your first couple flips is invaluable experience. The more houses you flip, the better understanding you will have of how you need to plan, the tools you need and the relationships you need to build in order to begin earning larger profits on your next couple projects.
As with any business, there is a right way to do things and a wrong way to do things. Here are the tips we recommend to make your house flipping business a success.
1) Marketing & Prospecting
No matter what business you are running, your ability to market and find high quality leads will determine that business's success. This business is no different. This is said to be the most difficult part of house flipping. Your ability to find properties at a deep discount that involve repairs that you or your contractor are comfortable doing will have a big impact on the success of your business.
If this is your first time flipping houses and you are unfamiliar with the industry, we recommend partnering up with someone who has done a couple successful flips.
There are several different ways to market and prospect. This is the part of the business where you need to get creative and test strategies that your competition may not be doing. Here are some ways to begin prospecting and marketing:
Inbound / Digital Marketing
Social Media Advertising
Driving For Dollars
Word of Mouth
Find out what strategies fit your personality. Test these strategies and iterate off of them. It will take time to find out what works within your specific market.
2) Nurturing & Customer Service
The reason that we market and prospect is to get our phone ringing. Once we accomplish that feat, our job is to make these potential leads comfortable to work with us. As we all know, the business of real estate investing has a bad stigma around it. Several potential leads that you work with will think that you are a scam artist.
Each piece of marketing that you send out will result in a potential lead entering your sales funnel. The marketing piece that these potential leads called from, will determine where in the sales funnel they currently stand. This will tell you how to nurture this lead and what information you need to get into their hands to move them through the sales funnel.
Customer Service is a high priority in this business. You need to be upfront and transparent from your first touch point with the client all the way through to closing. Walk each of your customers through the process and tell them exactly how it is going to play out. Always be proactive and be there to answer any questions they may have. Be very responsive and have a good understanding of your customer.
3) Understanding The Numbers
One of the most important aspects to ensure a profit on all of your flips is understanding the numbers prior to taking on the project. Before you start a project, you should have a good understanding of:
By understanding these numbers, you can determine if this specific project will meet your minimum profit requirements. There are several rules of thumb that investors like to work off of. One of those rules of thumb is the 70% rule. How the 70% rule works is:
You take 70% of the ARV.
Ex) $150,000 x .70 = $105,000
You then take your repair estimate and subtract that number from your new total ($105,000).
So if your repairs are $40,000 for this project, you will offer ($105,000 - $40,000) = $65,000.
Remember this is just a rule of thumb.
For a more accurate depiction of the numbers, you can use this formula:
ARV - Repair Costs - Holding Costs - Closing Costs - Profit = Offer Price
4) Accurately Determining Repair Costs
This is where the majority of house flippers lose their money. Failing to understand the true repair costs on a project will cost you. If you have never been through a big box store such as Lowe's or Home Depot, you are probably not privy as to how much material costs. If you have never done a flip before you're also probably not familiar with how much labor costs. When you do not understand these costs, you will underestimate.
So how do you accurately determine the repair costs? Well, if you are unfamiliar with construction, you will need to build a relationship with a general contractor to walk through these homes with you. They will be ab