Are you looking to make some extra income, but aren’t quite sure how to do it? One of the best ways to earn extra income is to flip houses.
Flipping houses involves purchasing homes for low prices, fixing them up, and then selling them for profit. But, there’s a lot more to it than that, and you can’t just purchase any house on the market and hope for the best.
Check out this guide to learn everything you need to know about making extra income from flipping houses.
What is House Flipping?
Before we get into the ins and outs of flipping houses, we first need to answer the question, “What is house flipping?” House flipping is a real estate investment strategy that involves purchasing a property to later sell for profit.
Typically, you’ll earn your profit by purchasing a house in a hot real estate market where prices are soaring. Or, you’ll earn your profit from capital improvements, also known for repairs. Many house flippers make their profit from a combination of these two things.
For example, you may choose to purchase a house in a “hot” neighborhood, make major renovations, and then sell the home at a price that reflects the new amenities and appearance.
Many real estate investors are able to set up a steady flow of income by flipping multiple homes on a consistent basis. To succeed at flipping homes, the main idea is that you need to buy low and sell high.
You want to complete the renovations and sell the home as quickly as possible so you can then use that profit to flip more homes and grow your income. The longer you hold onto a home, the smaller profit you’ll likely earn. This is because once you buy the home, you’ll still be responsible for paying a mortgage, HOA fees, and homeowner’s insurance until it’s been flipped.
For this reason, many investors like to purchase homes with cash upfront so they don’t have to deal with these ongoing costs.
Understand the Pros and Cons
Before you dive into flipping houses, you need to understand the pros and cons. Here are some of the biggest benefits of flipping houses:
- Make a Quick Profit: The main reason people flip homes is that if done right, you can make money very quickly. Many people earn their entire salary from flipping homes
- Gain Knowledge and Experience: Flipping homes can help you gain knowledge in construction, the real estate market, interior design, and more
- Expand Your Network: Through flipping homes, you’ll come in contact with many real estate agents, attorneys, building inspectors, contractors, investors, brokers, and other professionals who may come in handy for future investments
- Personal Achievement: Turning a rundown home into a lucrative property offers a great sense of personal achievement
With all of these benefits, it’s also important to consider the downsides of flipping homes. These include:
- Losing Money: Flipping a home isn’t guaranteed income. If you don’t strategize correctly, you could end up losing a ton of money
- Unanticipated Expenses: From building permits to material delays to contractor delays, many people don’t realize the unanticipated expenses that come with flipping homes
- Taxes: It’s important to understand that the profit you earn from flipping homes is subject to capital gains tax. These tax rates will vary depending on how long you owned the property
- Holding Costs: Even after you complete all of the renovations, you still have to deal with holding costs such as mortgages, utilities, and maintenance
While many people find flipping houses to be a lot of fun, some people also find it to be very stressful. From finding the right property to anticipating costs to dealing with contractors, there’s a lot that you have to deal with when flipping a home. If you’re not someone who’s good at juggling multiple things at once, then home flipping may not be for you.
Know the Process
Once you’ve weighed the pros and cons of flipping homes, you need to understand the process. Here’s what you need to do to flip a home:
Research Real Estate Markets
It’s important to understand that not every market is good for flipping homes. If you only have $10,000 saved up, then you probably don’t want to start flipping homes in the $600,000 range.
Even financing and investment property loans won’t allow you to bridge that gap. The less money you have to work with, the lower the pricing of homes you’ll be able to invest in. Hence, it’s crucial to look for flip loans to invest in a house.
Many real estate investors categorize homes according to class. Class A homes are the most expensive homes, Class B homes are middle-class homes, Class C homes are working-class/blue-collar homes, and class D homes cater to the lowest income earners.
Most home flippers choose a class to specialize in rather than flipping homes in all different classes. If you choose to flip homes in low-income neighborhoods, you’re more likely to flip to other investors rather than to homeowners. Oftentimes, these investors will either re-flip the home or rent out the property.
Most first-timers stick with Class C or Class B homes as these markets are a bit easier to navigate.
Understand Your Finances
Before you start flipping homes, you also need to understand your cash situation and set a budget. You first need to figure out how much money you have to invest on your own and whether or not you need to reach out to investors for cash.
If you need help with finances for your first house flip, you can turn to private lenders, banks, and other resources. You can also split your first house flip with a partner or group of people so you can start building some momentum in the business. Even though you’ll be splitting your profits, it’s better to get 50 percent of something than nothing.
Find a House to Flip
Once you have your finances in order, it’s time for you to find a house to flip. Remember, to make a sizeable profit from flipping, you need to purchase the home below market value. Also, you’ll need the profit margin to be wide enough to cover all of the expenses that come with flipping a home.
To find a home that’s below market, you can work with a real estate agent or work with wholesalers. Just remember that finding the perfect property to flip takes a lot of patience. Sometimes, you’ll need to tour dozens of properties, make dozens of offers, and send hundreds of letters before you find the right property to flip.
While it can be tempting to compromise, stand by your budget and your plan. Your patience will pay off.
Buy and Renovate
Once you’ve found the perfect house to flip, it’s time to buy it and begin your renovations. Before you buy a home, you’ll want to hire a home inspector.
Home inspectors look over the house’s HVAC system, electric system, plumbing, foundation, attic, floors, roof, and other areas to make sure the home is in the condition that the seller is claiming it to be. If the home inspector finds any issues with the home, you can renegotiate for a lower price.
Once the home inspector has done their job, you’ll want to walk through the property with several contractors to determine what types of renovations need to be done. Once you have all of this figured out, it’s time to purchase the home.
Even if you haven’t worked with a real estate agent for the rest of the flipping process, it’s a good idea to work with one when signing contracts. A real estate agent will be able to ensure that all of the contracts are in order and that you’re getting a good price for your home.
As soon as you’ve purchased the home, it’s time to begin renovating. Keep in mind that with each day that passes, you’re paying more in interest and maintenance costs, so you want to do the renovations as quickly as possible without compromising quality.
Sell the Home
As soon as you’re done making renovations, it’s time to sell the home. Typically, it’s best to hire a real estate agent to help with the selling process, as they’ll be able to market it, show it, and price it appropriately.
While many home flippers eventually get their realtor’s license so they can save on closing costs (usually 3.5 to 5 percent), keep in mind that it takes time and money to earn your realtor’s license.
For your first few flips, we recommend working with a real estate agent until you learn the ropes. You can check out manausa.com to learn more about hiring a real estate agent.
Are You Ready to Earn Extra Income from Flipping Homes?
Now that you know how to earn extra income from flipping homes, it’s time to get started. Pretty soon, the money will be flowing in from your home-flipping venture.
Be sure to check back in with our blog for more tips and tricks on how to earn extra income.
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