House flipping can be a potentially lucrative business if you are looking to earn money in the real estate industry and you do it right. House flipping has also become increasingly popular, and currently, between 200-250 thousand homes are flipped annually. However, house flipping requires a ton of investment, making it a high-risk business venture.
Fortunately, if you are interested in becoming a house-flipping guru in the long room, these smart steps should help you get on the right path.
1. Create A Business Plan
Like every other business idea, you will need to create a business plan if you want to get into the business of buying and flipping houses. Because you intend to make a profit, you must know what to include in your plan.
An excellent house flipping business plan should have a set of goals and achievements that include how you intend on flipping houses, the types of properties you would work with, as well as the geographic area. It should also touch on who will do the work, the timeline, and the number of projects you intend to complete in a given period, along with your expected returns.
You must also have good market analysis and make provisions for funding. You can either rely on your savings or apply for financing. It is more advisable to opt for financing, as it helps you buy and renovate more properties much faster.
Your business plan should also include your marketing and sales strategies. You can choose to either hire an agent or sell it by yourself. Ensure that you clearly define how you intend on marketing your property to make a profit.
Potential investors or partners want to have a clear detail of what to expect should they provide funding for your business; therefore, your business plan should cover these aspects as much as possible.
2. Set Up Your Business
When you are setting up your business, you must determine what kind of business it would be. Depending on what works best for you, you can register your business as a sole proprietorship or limited liability. Most lawyers would recommend registering your entity as a limited liability company, especially when protecting your assets in the event of an unforeseen circumstance.
You will also need to open separate bank accounts and apply for a business credit card. With the help of an accountant and lawyer, it should be a fairly easy process. You also need to register your business with the Internal Revenue Services and receive your employee identification number. It’s also good to check local and state laws to determine if you need other business licenses and permits.
3. Assemble A Perfect Team
House flipping is not a one-man job. It includes having a large team of lawyers, real estate agents, accountants, and contractors. All these people play an important role in helping you understand the business of house flipping, especially if you are completely new to it. They will ensure that you make little to no mistakes and work within the right legal framework.
You do not necessarily need to assemble this team at once, and most house flippers hire these people on individual projects instead of on a payroll basis. You will most likely need a lawyer and a contractor on your first project.
The real estate agent can come in much later when it is time to put the upgraded home on the market. When hiring the best team, ensure that you hire from a trusted source. It would be best to also consider your labor costs and how much you are willing to spend.
4. Secure Funding
This step is by far the most difficult of all steps when starting a business. House flipping requires large sums of capital upfront. Because it incurs so many expenses, you will need to source funds other than your bank accounts. On average, you can expect to spend between $25,000 – $50,000 on a 1,500 square foot three-bedroom house. However, it could be much more than that.
You can opt for hard money loans, which have faster approval times and are more lenient than traditional mortgages. You can also join an investment group to meet and network with investors who are looking to put their money into a business venture.
5. Network With Other Professionals
It would be best to build professional relationships in the house-flipping industry. This could be anyone in the entire process of upgrading a home from a contractor, carpenter, and plumber to a real estate agent. Having an extensive network would help you reach your goals.
Because you are now starting your house flipping business, it is important to note that everyone is a potential connection, including your friend, colleagues, and family members. Eventually, your network should include investors, real estate agents, lawyers, courthouse clerks, builders, and even your competitors!
You can start building your network by joining a house flipping or real estate investment club, where you can attend events regularly to meet new people. Ensure that you always go prepared with some business cards and other helpful materials that you can share with others. You can also find great online groups through forums and other websites.
Remember that your reputation plays a large role when it comes to networking. If you treat people fairly, they would be happy to introduce you to others.
6. Identify The Right Properties To Flip
Now that you have a well-detailed business plan, a team of professionals, and secured funding, it’s time to start looking for the best properties to flip and sell. When looking for a good fixer-upper, you should consider certain factors like its location and distance to amenities (schools, libraries, restaurants, and shopping centers). Ensure that you find homes that do not have any structural issues, which can incur additional costs and may require extra permits.
You must always work with your budget and timeline when renovating a home. You can use your business’s credit card for any purchases. Some credit card companies offer rewards, which can help you in the long run. You can also adopt sustainable methods by reusing house or other house flippers materials. Also, unless your target market demands it, it’s best to stick with neutral and classic designs if you want your house to sell faster once it’s put up.
7. Sell And Make A Profit
Your selling price should include your estate agent’s commission as well. However, if you get a real estate license for house flippers, you can showcase your property to prospective buyers and pay yourself a fair commission.
You can also put up the newly-renovated home on free listing sites. Your property may sell in a few days or months, but that depends on how you price it, as well as the needs of the local market. Once you complete a sale, you can move on to your next house flipping project and expand your portfolio.
These steps do not guarantee that you won’t make your fair share of mistakes when starting your house-flipping business. But they do help minimize the risks and effects of those mistakes and prepare you to face any challenges.
Some common mistakes to avoid when you get started in business are assuming you know how to perform tasks you are not qualified f
or (plumbing, electrical work), overspending, and buying properties far from where you live.
You will also understand the entire process and create the perfect recipe for making good money off house flipping with time.