House Flipping: What You Need to Know About the Business

Though the pandemic has greatly impacted the world economy, it is still undeniable that real estate has been one of the most profitable industries in the United States. Houses remain a necessity, and many are still purchasing properties to live in or profit from them. If you are thinking of starting a business by flipping homes, here is some basic knowledge to get you started on the right track.

What Is House Flipping?

In a nutshell, house flipping is a method used to describe the process of buying a house, renovating it, then eventually putting it back to the market to gain profit. Many private firms or individuals purchase a property at a low price then work with third-party contractors to up its value. Profits from this practice come from buying low and selling high immediately or buying it, repairing and reselling it almost double or even triple the original price.

Flipping versus Renovation

Aside from brokers, flippers are the second top earners in the real estate business. But before abruptly deciding to be one, you have to make sure that you know the difference between a simple home renovation and house flipping.

The majority of the time, the person doing a house flip is not the original owner, while house renovations are mainly done by the people living in it. Flipping is focused on the profit after the repairs are done. On the other hand, renovation is more about improving the state and appearance of a property you live in. It can be as simple as setting up a home office or putting a fire pit in your backyard.

In house flipping, the repairs and improvement are restricted to a certain budget or, at the most, must not exceed the amount you paid for the property. Renovations are different because they focus on the desired outcome rather than the cost to do so.

How to Begin House Flipping

Capital is an important factor when starting any business. To qualify for a business or personal loan, you must have a decent credit score. And since you will be dealing with major repairs and restoration, you need to have a liquid amount in the bank because despite wanting to minimize the cost of flipping, there are still instances when you would go above your initial budget.
You also need to know the real estate market trends. Are the people buying a single-detached home? Do they prefer townhouse-type apartments, or would they love purchasing a three-bedroom family home? These are some of the most common questions you need to ask yourself along the way. You have to play along with what is currently trending in the real estate market.

Begin Construction

As an investor, your main role is to take care of the repairs required to make the property worthy of selling. However, you should know that one golden rule in the flipping business is knowing the necessary construction needed and its cost before deciding on purchasing a property.

When starting the construction plan, you must make sure that the final sale price should exceed the combined cost of acquisition, the cost of renovation, and the cost of holding the property.

This is also the part where you need to make a full inspection of the house, and this must be done with the help of a professional. A house inspection is necessary to know which parts of the home need more attention.

There are many third-party contractors in the market, and some are offering top-of-the-line services. You would want to get your money’s worth, so focus on contractors who use high-quality materials. If you are working on an old building or house, try looking for contractors offering materials like OBIC products, a state-of-the-art lining that ensures structural integrity and corrosion-resistant. Remember that the safety of future buyers is as important as your potential income.

Your Targets as a House Flipper

Many house flippers focus on the location of the property more than anything else. It is the one important factor that you should consider before even thinking of making an offer. You should make sure that the location where you’re buying a house or building has a demand for it because if you fail to do this research, you might end up holding a stagnant property for a long period.

That will cost you not just precious time but a lot of money as well. Some properties that you also need to look out for are:

  • Tax indebted houses
  • Houses that are on the verge of foreclosure
  • Off-season resellers
  • Houses that are in an auction due to late payments
  • Unkept and old houses

 

Despite the stigma in the flipping business, know that this is an ethical practice. If you are working on your best intentions, you will last long in this business. Arm yourself with these basic guidelines and continue to learn more to make sure that you’ll make the most out of flipping houses.

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