There’s no doubt that tv shows and youtube channels have popularized the concept of flipping houses because of its easy-to-follow process but is flipping houses profitable?
Despite its easy process, flipping houses require knowledge, planning, and savvy to be successful.
According to Attom Data, 407,417 single-family homes and condos in the United States were flipped in 2022. This was a 14% rise from 357,666 in 2021.
So you see how much flipping a house is glamourized, but as an investor and a money-minded person, you only care about the profit and revenue it will help you generate. Right?
So, without further ado, let’s get started on understanding what flipping houses is and whether it will help in making you a millionaire or not.
What Is House Flipping?
House Flipping simply means when you buy a house at a low price, hold it for a short period of time, fix it by doing repairs and other necessary work it requires, and then sell it at a higher price.
Typically, flippers buy distressed properties which need repair, and sometimes they buy and sell homes to wholesalers without making any repairs or fixations.
The ultimate goal of flipping a house is to buy the property for low and sell it for high prices and make a profit in a relatively short time, say- within a month or a year.
Flipping-Houses Advantages & Disadvantages
Flipping house comes with a plethora of advantages, and the most important one is profit however everything comes with its own advantages and disadvantages, and so does flipping houses.
Advantages
1. Profit Margin
According to Attom Data, the typical gross profit (the difference between the median purchase price paid by the investor and the median resale price) was $67,000 in the first quarter of 2022. So successful home flippers can make more than 26.9% profit by flipping houses.
2. Secondary Income Source
Some people start house flipping and eventually make it their full-time job. However, some people make flipping houses as their secondary source of income or a part-time job.
3. Diversify The Investments
You might have heard about ‘Don’t keep all your eggs in one basket.’ Flipping houses provide diversification in your investment portfolio.
As an alternative to stocks and bonds, real estate is also an excellent and most-popular long-term investment.
Disadvantages
1. House Repairs
Most often, flippers have to invest a good amount of money in repairing the houses they purchased, like mold, water damage, HVAC termites, or anything very unexpected. This increases the anticipated cost of the flippers.
2. Long Wait Time
The most crucial rule in flipping a house is to sell it quickly. If your property is not selling quickly, then be prepared to bear costs like mortgage payments, homeowners insurance, property taxes, and all other costs.
3. Legal Issues
Flippers also have to go through a lot of legal issues cases like if the property doesn’t have a clear title. This makes it important to have an excellent real estate attorney on your team.
How To Get Started With House Flipping?
These are the following steps you need to follow if you are thinking to start house flipping:
1. Set The Budget
If you are new in this industry then maintain enough funds as what you think is enough, isn’t enough.
Multiply your current estimated budget by 5 times and this will be your actual funds required to operate the business from purchasing to repairing to selling the house.
2. Look For The Right Property
Find the right property according to your estimated budget. Look in foreclosures, auctions and short sales for the right property.
You can also seek the advice of an experienced real estate agent to find your right match.
3. Create An Offer
After you find the right property and estimate your budget the next step is to make an offer. Many flippers calculate their bid on the basis of after repair value.
Sometimes, the offer you’ll make will not work so it’s okay to have multiple properties in your list.
4. Set Timeline For Repairs
Not all renovations require the same amount of time, it depends on each project. So, set the time for repairs and upgrades required.
Make the necessary repairs taking appropriate time because your flip is somebody’s dream home.
5. Hire Contractors
You can manage some minor repairs required in the home; however, you need to hire trusted contractors to do the professional job.
Make sure to check their licenses and references when you hire a contractor. Also, hire a contractor only if they meet your estimated budget and set a timeline for repairs.
6. Sell The Property
After all the updates, the property is ready to be sold in the market. You can either sell it through your networking or also hire a real estate agent to find the right buyers.
Is Flipping Houses Profitable?
Yes! The house-flipping market has seen a growth of 8.4% in 2022 in comparison with 5.5% in 2021, making it more profitable than most businesses.
And according to Attom Data, the market has seen a profit of 26.9% in the year 2022. So, flippers definitely have a golden opportunity to buy houses and sell them for cheap.
Some professional flippers have also made $1 million by flipping the houses, but then it will require you to earn the appropriate profit on each house. For example-
Flipping one house with a $1,000,000 profit
Flipping 5 houses with $250,000 profit on each
Flip 10 houses with $100,000 profit on each
Flipping 20 houses with $50,000 profit on each house
Flip 33 houses with $33,333 profit on each
Flipping 50 houses with $20,000 profit on each house
This might seem simple math to earn $1 million by flipping houses; however, it’s not that easy in real.
There is also a possibility of earning $60,000 profit on each house, but only if repairing costs, selling costs or financial costs, and closing cost are eliminated.
Here is some data giving you an insight into the average gross profit and average return on investment of 5 best house-flipping states in 2022:
1. Average Gross Profit
| STATES | AVERAGE GROSS PROFIT |
| District of Columbia | $215,023 |
| Delaware | $193,245 |
| Maryland | $143,900 |
| New Jersey | $135,000 |
| Massachusetts | $120,000 |
2. Average Return on Investment
| STATES | AVERAGE ROI |
| Louisiana | 55.6% |
| Delaware | 96.1% |
| Maryland | 69.8% |
| New Jersey | 55.1% |
| Pennsylvania | 75.2% |
However, home flipping is a risky business, and even for expert flippers, a lot could go wrong without proper planning and estimation.
So, overall flipping houses is a profitable business, but you need to do proper planning and apply the proper strategy.
Common Mistakes In House-Flipping
Flipping houses is an excellent opportunity for many flippers, but due to the following mistakes, some flippers might end up losing everything in the market.
1. Not Planning
A flip might badly fail if you don’t do proper planning and strictly implement it. A flipper can simply fail in the market due to a lack of experience.
One of the most essential parts of planning is estimating the budget and collecting the funds accordingly. “Whatever your original budget is, double it and then double it again, then add your original budget on top of that,” Pi says.
2. Thinking It’s Easy
Flipping houses is not as easy as you might have seen in tv shows. It takes time and money with proper planning.
Flipping houses can make you lose a lot of money if you are thinking it’s an easy peasy money.
3. Not Inspectin The House Before Purchasing
Now, many flippers skip this part, thinking that the house will only require minor repairs. However, the situation changes when the house requires more repair making a hole in your wallet.
So, it’s important to get your home inspected by a home inspector and estimate your budget according to the inspection report provided by the inspector.
4. Not Having The Right Team
A good house flipping team includes accountant, house flipping mentor, real estate agent, contrustion/remodelling company, and a home inspector.
You must have all these professionals in your team, if you are thinking to turn flipping house into a full time business.
5. Trying To Do It Part-Time
If you have a full time job then teying to do house flipping as part time might be difficult for you.
For instance, if your working a regular job and an unexpected emergency came up on the site and someone need to be there on the site.
Which Cities Are Best To Flip Houses?
The best cities to flip houses largely depend on what you are looking for and your finance.
According to New Silver, the 5 best cities to flip houses in 2023 are as follows:
1. Atlanta, Georgia.
2. Hartford, Connecticut
3. El Paso, Texas
4. Jacksonville, Florida
5. Charlotte, North Carlina
How Long Does It Takes To Flip Houses?
The average time to flip a house from the day it was purchased to selling the house is 4 to 6 months. However, it may take months to flip a house based on what the project requires.
The time period of flipping a house also depends on the home’s location, housing market condition, and marketing efforts.
Tips For Flipping Houses Like An Expert
1. Location
Real Estate is all about the location of the house. A good location with all amenities will boost the price of your flip house, but a neighborhood with a high crime rate would definitely degrade the value of your flip house.
So, look for a property that has grocery stores, playgrounds, hospitals, schools, etc, in the neighborhood.
2. Inspect
Hire a home inspector to check the major and minor issues in the house. Inspect the things like plumbing, electrical, roofing, HVAC, and foundation.
Make sure to get a repair estimate if the home inspection report states some significant issues in the home.
3. Stick To 70% Rule
When purchasing a property to flip, remember not to pay more than 70% of the property’s After Repair Value (ARV).
Here’s a 70% Formula you can use:
Your Purchase Price: After Repair Value x 0.70 – Rehab Costs
4. High-Quality Repairs
Make sure to put time and effort into renovating the property. Also, make sure you have permits to make any additions to the property, like electrical, HVAC, or plumbing.
Boost the aesthetic appeal of the house right from the curb. This includes mowing the grass, landscaping the lawn, and sometimes applying fresh paint on the house.
5. Funding
Fund your flip to avoid stopping mid-way in the repair work. The average expense to fix a house ranges between $17,900- $78,560.
You can also fund your flip from small business lenders, hard money lenders, and private investors.
Conclusion
Overall, house flipping is a profitable business but only if you do it with proper planning and have a good as well as right team members.
Always remember to follow the above-mentioned points to house flip like a pro and make millions in the business.
FAQs
Do I Need To Have A Cash Offer To Flip The House?
Cash is more attractive to sellers, you might see many cash offers accepted on the house-flipping shows.
However, many people also finance their house flips. Cash offer depends on the situation.
What Is 70% Rule In House Flipping?
The rule says that flippers should not pay more than 70% of a property’s after-repair value (ARV) minus the cost of repairs mandatory to repair the house. The ARV is the amount a home could sell for after the renovation.
What Is The Risk In Flipping Houses?
The worst risk associated with flipping houses is that you spend 4 to 6 months renovating the house, and it ends up selling in the market or someone related to the buying process dyes.