House Flipping 101: 5 Essential Rules for Beginners

Reality shows showcase people doing all sorts of interesting things. One of the most popular are people engaging in home flipping. On the surface, flipping a home seems like a great thing to do. Make a few corrections, invest some money and walk away with a tax free profit. It is possible to make money flipping houses. At the same time, it’s a process that needs to be done very carefully. Anyone who is planning to engage in flipping a home in Austin, Texas or any other local community should bear in mind the following basic rules before they begin. Keeping these details in mind before you begin will make the process a lot easier and increase your chances of financial success.

Rule 1: Understand Your Cash Needs

One of the fundamental rules of flipping houses is the need for cash. Taking a house from blah to fab requires money. Have a close look at your financial situation. If you have cash in hand, that’s great. If you don’t, you’re going to have to find hard money lenders in Austin who can help you. Before you begin, have a close look at all aspects of your finances. You should know your credit rating and your monthly expenses. Potential house flippers should also have a rough idea of the kind of funds they’ll need to complete the project.

If you don’t have quite enough cash, consider forming a partnership with another person or even a group of people. Several people have a larger pool of savings. They also have a much larger knowledge fund than a single person.

Rule 2: Find That Team

While you can fund a home flip on your own, you’ll probably need a team of experts to complete the actual process of preparing the home for sale. Real estate investing is a complicated process. You might know about some aspects of it but chances are there are areas where you’ll come up short. This is why it is wise to sound out others before make an offer.

Now is a good idea to find a real estate agent, a real estate lawyer, a tax expert, an architect and anyone else who can help you create maximum value. A team should be in place well before you think about buying that property. They can focus on the little details that make any project a success. Meanwhile, you can concentrate on the larger picture and get the project completed on time and under budget. They’ll also help you understand what you need to get done before you tackle your next home flip.

Rule 3: Locate That Undervalued Property

Finding a house that is undervalued can be a challenge in any market. Foreclosure rates are down and the supply of properties can be quite limited. At the same time, a skilled and thoughtful investor can overcome these issues and get a jump on the competition. There are many ways to find sellers.

One technique is to create what are known as bandit signs. Bandit signs are signs that potential buyers put up to entice sellers to call them. While the wording varies, in general, it’s usually asking the seller to call the buyer if they have an unattractive property.

Other popular techniques are also easy to implement. Examining local housing data can be quite helpful. A list of homes that have clearly been abandoned by their owners can yield many possible leads.

Rule 4: Know Your House Flipping Math

Know your math before you begin. The most important number is what is known as the After Repair Value. This number is what the house is likely to sell for once you’ve finished with repairs. Then there’s the Maximum Allowable Offer or how much you’re willing to pay for the property. Multiply the ARV by seventy percent. Subtract the costs from the Maximum Allowable Offer. This is the best way to find your profits and reduce your risks. Then you’re going to want to subtract all repair costs. This will give you a rough estimate of how much it’s going to cost and the kind of profit you can expect when the project is completed.

Rule 5: Time is Crucial

Perhaps the single most important rule is an easy one. Move as fast as you can when flipping homes. The longer it takes to finish a renovation, the more you’re putting into the property. When the house sits on the market, you are liable for all sorts of costs including property taxes, insurance and any sudden repairs. Aim to do all repairs to a very high standard. At the same time, aim to get things done as fast as you can.

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