Many people have asked me about starting a house flipping business. After all, you may already know when the housing bubble burst, Christina and I began flipping houses. This was one of the worse real estates markets in history.
Even in a terrible market, house flipping isn’t really that hard, as long as you know what you’re doing it. While we cover many of the details in our Success Path Education workshop, there are some basics you need to know before you start a house flipping business.
FIGURE OUT HOW MUCH IT WILL COST
Before looking for funding, you must have an idea of the start-up costs. You must know which types of investment properties are selling in your chosen location. The location is important if you’re thinking about buying. You also need to know the approximate cost for rehab work. There will also be costs associated with getting the house on the market and ready to be sold.
FIND A FUNDING SOURCE
To flip houses, you need investment capital. Don’t use your savings for the investments. Instead, get a loan or partner with an investor. You need to consider the lender’s interest and fees or the investor’s share of the profits when you calculate the amount you can afford to spend on the property. These figures will also be used to determine the amount of funds available to rehab the property.
ASSEMBLE A TEAM OF REAL ESTATE AND REHAB PROFESSIONALS
After you have your funding in place, you’ll be able to set a basic budget. You should operate on the 70% rule. That means you should only spend 70% of the after renovation value (ARV) of the home on the purchase and rehab costs. After you determine how much you’ll spend, you can start interviewing general contractors, realtors, and inspectors. If you’re still unsure then read this piece on how to start flipping houses.
MAKE SURE THE HOUSE IS UP TO CODE
Before viewing potential properties, research local laws and regulations. Some states require house flippers to be licensed as general contractors or realtors. Make sure that your house flipping business meets the requirements of local laws before you purchase a house.
FIND A PROPERTY AND START FLIPPING
Now you’re ready to start your first flip. All you need to do is find it and buy it. That’s not always as easy as it sounds. Finding new properties is the part of house flipping that I love, but it does take patience and work. The house you find has to be in a neighborhood that has a good real estate market and few vacancies. The house itself needs to have the right market potential. You don’t want to jump in and buy the first property you find. If you do, you may end up regretting it when you find out the house you bought is a flop.
So, those are the basics, and you didn’t even have to sit through a real estate flipping workshop. However, that’s the short version of what goes into starting a house flipping business. After you start flipping houses, it gets easier and becomes more fun. You’ll enjoy your new business, even when you find feral animals running around the house you’re buying, or when all the windows are smashed out.