One of the first things to consider if you want to flip houses is your financial plan. You need to determine how much money you are going to need to flip houses and where you are going to get it. This article is part of our flipping houses for beginners series. Throughout this series we are going to teach you how to flip houses for profit.
In some areas of the country may be you can get started profitably flipping houses for $100,000.00. This includes purchasing the house, repairs and holding costs. In other areas you may need $300,000.00 or more.
You need to decide if you are going to flip houses full time or part time. Perhaps your goal is to start part time and hopefully make flipping houses a full time job after a period of time. For most of us, starting flipping houses part time is a more realistic wealth building strategy, especially if we have a good full time job now.
As part of your financial plan, you need to decide how many hours a week you can devote to house flipping assuming you are doing it part time. If you are going to do it full time then you will need to be prepared to work 40 hours a week PLUS. As a full time house flipper just starting out, I would be prepared for many, many more than 40 hours. Later, once you have a team, you can move that number back.
You need to decide what your short and long term goals are. Do you want to make $25,000.00 in the first or $100,000.00 in the first year? Where do you want to be in 5 years? Are you trying to replace your full time income or just looking for part time supplemental income? Your answers to these questions make a difference on the type and number of properties you must flip each year.
How much can you afford to lose flipping houses? As a house flipper you may have loses. Can you afford to lose $5,000.00? What about $50,000.00? Your answers here determine the size of house flipping deals you should look for and how perfect of a deal you must have to proceed. If you have a very small risk tolerance, which is OK on your first flip, then you need to find a little bit smaller deal with less repairs needed and perfectly priced. These deals are out there but they take longer to find so you must be patient. On your first flip, there is nothing wrong with that.
In flipping houses there are only four ways to make money.
- You purchase the house REALLY cheap.
- You complete renovations that increase the market value of the house.
- You sell it for A LOT of money.
- The general market goes up.
In truth, we normally use the first 3 every time we flip a house to a larger or smaller degree. I would never assume the general market will go up. First of all, it might go down as well. Second, we don’t plan on staying in the house that long. Thirty to sixty days will normally be our limit. The less time we spent on a flip project the better!
When you are looking at potential flip deals you need to consider your costs as you put together a house specific financial plan, this is different from your overall financial plan.
Start with the purchase price of the house including closing costs. This is your initial investment.
Next, add in your renovation costs. You can start with ‘guesstimates’ based on any experience you might have, but do not make any final decisions without good hard estimates from three or more contractors.
Check out our article: How to Find a Building Contractor for more information on finding a contractor.
Figure your holding costs. This would be insurance, interest, utilities, etc… To figure this you are going to need to know how long it will take the contractor to finish the project. I then usually add another 30 days for selling the newly remodeled house.
Add up your initial investment, renovation cost and holding costs. This is your total investment (so far).
Next, take the estimated sales price of the house once all the renovations are completed and subtract your total investment from above. This will give you your gross profit.
Finally, subtract your estimated closing costs and this will give you your potential net profit on a house.
Is the return what you are looking for? Is there enough money in it to justify your time and risk?
Want to know more about Purchase Price and Return? Check out our article Purchase Price and Return.
Deciding to flip houses for a living is not an easy get quick rich program. There is a good amount of education you need to do before you just jump in and start flipping houses. There are many things that can go wrong while you are leaning how to flip a house for profit.
We may repeat ourselves from time to time though out this series of articles, especially when it comes to common mistakes that new home flippers make. That is why it is a series dedicated to flipping houses for beginners as well as flipping a house for profit.
There are also a number of courses you can take that offer you good insight to flipping houses in a more structured program. Some people need the structure of a course program that builds little by little on the things you are learning. Others are happy searching the internet and YouTube for the answers to their house flipping questions.
There is no right or wrong way to learn how to flip houses for profit. It comes down to what works best for you. We will continue to provide you with a series of articles we hope will help move you down the road to real estate riches.
One thing we can and DO highly recommend is finding a mentor. In virtually every city there are real estate investment groups. Find your local real estate investment group and start attending the meetings. You will meet your local real estate investors and can probably find at least one that will help mentor you. Their time is valuable so you might have to find more than one, but most investors will make the time to give advice and share their experiences. People in general like to help each other.
If you find someone to help you just remember to ‘pass it on’ one day when a beginning house flipper asks you for help.
Another website we can recommend is biggerpockets.com. There is a lot of good information on biggerpockets, we are members ourselves.
Good luck on your house flipping and keep checking our site for updates. We are working on our on houses but still try to keep the site updated when we can.