What’s the basic process for flipping a house?
Flipping, wholesaling — you can call it whatever you want, but how do investors actually "flip" a house? We’ve discussed a few of the finer details in other posts, and now it’s time to put it all together into one coherent process. From start to finish, here are basic steps for flipping a house:
1) Understand Your Role As a Middleman
Imagine you’re a used car dealership. You find people that are ready to unload their cars for a discounted price. After buying the car, you put it on your lot with a slight markup. You take out ads on the radio telling people that they can get a great deal at your car lot because you’re selling cars below the Blue Book Value. In other words, you’re a middleman. You collect a fee for that service.
When you’re flipping houses, you’ll use a similar formula. You’ll buy houses from motivated sellers, mark them up, and resell to investors looking for a good deal. In other words, you are in the business of making other people money. No one particularly cares how much time you invested or how much money you make from the resale. They are paying you to find them excellent investments. You’re providing a service.
2) Figure out What Investors Will Buy
You also need to understand that every market has its own opinion of what makes a good deal. In Charlotte, North Carolina, investors want to buy properties 20-30% below their market value. Los Angeles, California is a different story. For the most part, investors buy for appreciation or renovation. If you tell a realtor that you’re only interested in properties selling 20-30% below market value, they’ll laugh at you. Where, in Charlotte, it’s a fairly reasonable proposition.
If you want to specialize in flipping houses, you need to know the standard in your area. For example, you might live in a small town with lots of blue-collar workers, where investors like to buy old properties and use their handyman skills to fix them up. They might want properties with a purchase price less than $50,000 and 30% equity after the rehab. If you can find properties that meet those specifications, you should have plenty of buyers ready to work with you.
3) Find Better Deals and Collect the Balance
Remember, you make your money from the markup. You need to look for properties that are better than your investors require. Otherwise, you won’t make any money. For example, if your investors are willing to pay $70,000 for a house that is worth $100,000, then you need to pay less than $70,000 for the house. Preferably, at least a few thousand dollars less. You might buy it for $65,000 and resell it to one of your investors for $70,000, making a quick $5,000.
Of course, it’s easier to talk about it than actually do it. Unless you’re in an especially poor market, it’s difficult to convince anyone to take 35% below market value for their home. Most professional house flippers take several months to build up their database and find a few deals before they start making money. It’s a business that takes time and a lot of hard work. Still, if you’re willing to do what it takes, there are countless investors who are willing to pay you for the service.