How to Flip a House - Expert Tips for Beginners

While people purchase properties for many reasons, the potential to fix them up and sell them for a profit makes house flipping a common topic for newbies and experienced real estate investors.

While the concept may seem simple after watching a few reality TV shows – buy a house, spruce it up, sell it for a profit – the pieces that must come together to ensure that a seemingly easy formula yields the desired result can be much more complex. Flipping houses involves understanding the market, securing financing, managing renovations, and planning the timeline for reselling the property, all of which require careful planning and execution.

The real estate market constantly evolves, influenced by economic trends, interest rates, and local demand. To flip successfully, you must choose a market where properties are in demand and prices are trending upward.

Start by researching the neighborhoods where homes sell quickly and for a good profit margin. This requires extensive research, but your legwork at this stage can be essential for a successful flip.

Remember that not every house is a good candidate for flipping. Researching comparable properties is crucial when estimating a home's after-repair value (ARV). Understanding the selling prices of similar homes in the neighborhood can significantly impact the accuracy of your valuation and ultimately influence profitability.

You want to look for homes that are undervalued but have the potential for short term appreciation. This often means targeting homes that need cosmetic updates rather than extensive structural repairs. The location is vital; a fixer-upper in a desirable location is usually a better investment than a pristine home in an area outside of major attractions. It’s all about balancing purchase price, renovation costs, and the potential resale value.

Securing financing is another foundational step in house flipping.

While some flippers use personal savings, others rely on loans or lines of credit to fund their projects. Hard money loans, for instance, are popular among house flippers because they offer quick approval and funding based on the property’s value rather than the borrower’s creditworthiness. However, these loans can come with higher interest rates, so it’s essential to factor in all costs before committing.

One of the golden rules in house flipping is the 70% rule. This rule helps flippers determine the maximum price for a property to ensure a profitable flip.

The 70% rule also helps ensure a gross profit by providing a cushion for expenses.

The basic idea is to pay no more than 70% of the property’s After Repair Value (ARV) minus the estimated repair costs. For example, if a home’s ARV is $200,000 and needs $30,000 in repairs, you shouldn’t pay more than $110,000. This rule provides a cushion to cover expenses like closing while leaving room for profit.

An accurate ARV is one of the most critical metrics in the house-flipping process. To calculate it, research comparable homes that have recently sold. Look for homes with similar square footage, bedroom and bathroom counts, and amenities.

The ARV will guide your renovation budget and help you set a realistic sales price. Knowing the ARV also enables you to avoid over-improving the property—there’s no sense in spending more on upgrades than the market will bear.

While the 70% rule and ARV are essential, understanding your return on investment (ROI) expectations is equally important.

A successful flip often yields an ROI of 10-20%. To calculate your ROI, subtract the total costs (purchase price, renovation, holding costs) from the selling price, then divide by the total costs and multiply by 100 to get the percentage. Setting realistic ROI goals ensures you’re not just breaking even but making a profit on your investment.

After completing all the pesky math, the next essential step is planning the renovation project.

When planning renovations, it is crucial to include all significant expenses in your budget, such as repairs, commissions, and closing costs, which typically range from 3% to 6% of the loan amount.

You may be tempted to be prudent with your spending, but hiring the right team is crucial for bringing your renovation plan to life.

Don’t try to save on expertise; look for experienced contractors, designers, and project managers with a track record of working on similar projects. Get multiple bids to ensure you’re getting a fair price, and don’t be afraid to ask for references. Communication is key—ensure everyone is on the same page regarding the timeline, budget, and expectations. Regular check-ins and site visits can help you stay on top of the project and address any issues.

Before swinging that first hammer, make sure you have all the necessary permits and understand the local regulations.

Depending on the scope of your renovations, you may need permits for electrical work, plumbing, structural changes, and more. Without them, you may find yourself dealing with fines, delays, and even having to undo completed work. Schedule inspections at crucial points in the renovation to ensure everything is up to code.

Maximizing your profit is one of the most important goals for aspiring and experienced house flippers. One of the best ways to do this is by lowering transaction costs. Buying a fixer-upper with the assistance of a buyer’s agent that offers commission rebates can save you thousands on every flip.

It's important to differentiate between an investment property and a house flipping project. An investment property is typically acquired for long-term value, such as generating rental income, whereas house flipping involves buying a property, renovating it, and selling it quickly for profit.

Simply put, commission rebates are a portion of any seller-paid buyer agent’s commission returned to a buyer as savings once they close on a home. Modern brokerages like Prevu Real Estate prioritize a streamlined digital homebuying platform and local salaried agents to unlock these savings for buyers they represent.

Buyers who work with a Prevu agent can use the company’s platform to explore potential fixer-upper homes that match their exact criteria, communicate with their agent directly through the site, and set up property tours with the click of a button. Each listing on the site also gives an estimate of the potential rebate you might be able to receive when you buy.

Prevu currently offers the largest rebate in the states it operates in, allowing buyers to receive up to 1% of the purchase price of a home via their Smart Buyer Rebate.

The extra cash can be essential in lowering transaction costs or helping to offset out-of-pocket renovation costs on your fix-and-flip project, adding to your bottom line.

Start by focusing on high-impact renovations that will add the most value to the home.

Kitchens and bathrooms are usually at the top of the list, as they’re the rooms that buyers typically scrutinize most closely. Updating countertops, cabinets, and appliances can give the home a modern feel that attracts buyers. Don’t forget about curb appeal—landscaping, fresh paint, and a new front door can make a solid first impression and set the tone for the rest of the home.

Time management is crucial during the renovation phase.

Every day that the property sits unsold is a day that you’re incurring holding costs, such as mortgage payments, insurance, and utilities. Property taxes also add to these holding costs and can significantly impact overall profitability, especially if the property is held for an extended period before resale. Set a realistic timeline for the renovation and stick to it as closely as possible. Work with your contractors to ensure everyone understands the schedule and is committed to meeting deadlines. Be prepared to make quick decisions to keep the project moving forward, but don’t rush through important details that could affect the quality of the work.

Cost management is equally important. It’s easy to get carried away with upgrades, but remember that every dollar you spend eats into your potential profit.

Stick to your budget and prioritize the renovations that will have the biggest impact on the home’s value. Track all expenses and compare them against your original estimates to avoid surprises. If you find that you’re going over budget, look for areas where you can cut back without sacrificing quality. By managing both time and costs effectively, you can complete the renovation on schedule and within budget, setting the stage for a successful sale.

Staging and presentation are crucial to making a strong impression on potential buyers.

Understanding the housing market is essential when pricing the home. Knowledge of real estate trends can help you make smart investment decisions and avoid potential financial pitfalls.

Staging involves arranging furniture and decor to highlight the home’s best features and make it feel welcoming. High-quality photos and a virtual tour can also help showcase the home online, where most buyers start their search.

Pricing the home correctly is crucial to attracting offers quickly. Set the price too high, and the home may sit on the market for too long, leading to price reductions and a lower final sale price. Set it too low, and you may leave money on the table.

Working with an expert real estate agent would be ideal, as they would help analyze comparable sales in the area and determine a competitive price that reflects the home’s value after renovations. Be open to adjusting the price if necessary based on feedback from showings and market conditions.

In addition, before hiring a listing agent, be sure to interview multiple agents and negotiate the commission rate - typically the largest transaction cost for any seller.

Marketing the home effectively is the final step in preparing to sell. Use traditional and digital marketing strategies to reach as many potential buyers as possible. In addition to listing the home on the MLS, consider hosting open houses, using social media, and traditional word of mouth. The more exposure the home gets, the better your chances of finding the right buyer quickly and closing the sale at a favorable price.

Once the offers start coming in, you’ll need to focus on negotiations.

Be prepared to counteroffer if the initial offers are lower than expected, but also be willing to make concessions to close the deal quickly. Your real estate agent can help you navigate these negotiations and ensure you get the best possible deal.

Once an offer is accepted, the closing process begins. This involves finalizing all the paperwork, including the purchase agreement, title transfer, and any necessary disclosures. Real estate agents play a crucial role in ensuring a smooth closing process by handling these transactions efficiently. The goal is to ensure a smooth and efficient closing, so stay in close communication with your agent, the buyer, and any other parties involved.

Even the best-planned flips can encounter last-minute issues, such as unexpected repairs or delays in financing. It’s important to stay calm and flexible during this time and to work with your agent to resolve any problems. Whether agreeing to a price reduction because a buyer wants specific repairs or extending the closing date to accommodate the buyer’s financing, being willing to adapt can help keep the sale on track.