How to Flip Homes at a Profit: the Basics

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House flipping is the practice of buying homes, usually at auction, with the purpose of reselling them at a profit. Real estate investors of all kinds make a lot of money doing this, and with the right knowledge, you can, too.

But that doesn’t mean flipping a home is easy. Keep reading to learn about the basics of house flipping for a profit, and how hard money lenders can empower your investment dreams.

Getting Funding With a Hard Money Loan

It’s traditionally thought that, in order to excel at house flipping, you had to have exceptional credit. Thanks to hard money loans, this is not necessarily the case.

Hard money lenders and private lenders make real estate loans based on the value of the property you want to invest in — not so much on your credit. So if you have a lower-than-average score or an imperfect credit history, you may still qualify for hard money “fix and flip loans,” which you can then use to invest in property for house flipping.

Recognizing a Good Real Estate Investment

Obviously, not every house is a good investment. Even if a home is selling for a rock-bottom price, that doesn’t mean it will automatically make you a fortune. To be a successful house flipper, you’ve got discern which homes will yield the best profit.

One thing you want to look for in a great investment home is a good location. Scout out homes in desirable neighborhoods, or neighborhoods that are on their way up. This is important because, while you can do a lot to improve a home, there’s not much you can do to improve the neighborhood it’s in.

Characteristics to look for in good neighborhoods are increasing real estate sales, employment growth, low crime rate, and good local schools. You might also want to find a home that’s pretty close to where you already live; that way, you won’t have to travel far when you’re coming by every day to work on it.

Avoiding Terrible Real Estate Investments

Most things about a home can be improved, but there are some problems you should simply stay away from. A cracked foundation or the presence of black mold might cost more to fix than you can justify spending. If you’re buying an older house, ensuring it has a solid foundation is essential.

Try to have homes inspected before you make purchasing decisions. If a home you want to buy is selling at auction and you don’t have the opportunity to have it inspected, you’ll need to know enough about home maintenance to recognize a bad investment when you see one.

The ideal house to flip only needs to minor updates to resell. Projects like refinishing cabinets, fixing up the yard, repainting walls, or adding new hardware are all relatively low-cost, and can totally transform a home. When you calculate how much a home will cost to fix, experts commonly advise that you add 20% to the total estimate to the final cost, just to be safe. Don’t forget to include the cost of any necessary building permits, too.

Understanding the 70% Rule

The 70% rule states that you should pay no more for a home than 70% of its after-repair value (ARV), minus the cost of the repairs themselves.

When you’re first starting out with house flipping you won’t yet have the experience necessary to know a good investment every time. For that reason, following the 70% rule can help you avoid costly mistakes when you’re getting started.

Finding a Mentor

If you’re acquainted with a prolific house flipper, ask that person if they are willing to mentor you as you get your start in the industry. If you can, offer them an incentive to become your mentor. This might include offering them a small percentage of the profits from your first successful house flip. This will help that person feel motivated to teach you what they know, giving you a much better chance of success. Offering to pay them for their efforts also puts you in a position to approach people you don’t personally know, since they will be more receptive to the idea of exchanging their knowledge for cash.

There’s a lot more to know about house flipping successfully, but following these tips will get you off to a great start. When you’re ready to invest in a hard money loan, rely on Hard Money Georgia to get your business off the ground.