Flipping homes may be the more complex method of investing in real estate, but its also one of the most profitable ways and where most millionaires become billionaires. However, it is not easy, and the best we can do is educate ourselves to make the best decision.
Here is a step by step guide to flipping homes!
Step 1) Understand Your Finance Options & Learn to negotiate (70% Rule)
First, Understand what your home financing options are. Such as buying the home with cash or applying for a home mortgage loan or will you be taking out a HELOC? Take the time to understand your finance options to make the most knowledgeable choice for your situation. This is a great time to dust off your old “how to negotiate” books or check out some videos on youtube since negotiating yourself into a good deal is a significant factor in your venture’s success.
A fundamental rule to follow is the 70% rule, which is a calculation to determine how many years it’ll take for your money to double given a specified return rate.
This rule states that investors should pay no more than 70% of the after repair value (ARV) of a property minus the cost of the repairs needed. This will help you avoid overpaying.
Step 2) Research the Market & Understand Project Costs
For this property, don’t overthink emerging neighborhoods since the main goal is to buy and sell the home fast. Research the market to see where people are living and what the prices are. Foreclosures are great to capitalize on, so some places you can search for foreclosures are:
- Websites like Zillow, Craiglist, auction.com & Foreclosure.com (of course) are great places to look!
Also, do your best to avoid overpaying on repair costs by familiarizing yourself with average project costs. Learn what is most important to work on (don’t worry as this part will get better with experience, and soon you will know what each project cost will be.) Also, rolling up your sleeves and repairing some things yourself will significantly help your knowledge bank and your pocket bank!
Main projects that increase home value are:
- Repainting the exterior of the home
- Upgrading Kitchen Appliances
- Installing Additional Storage space and closet space
- Upgrading the deck
- Adding green Energy Technologies
- Adding Storage space and closet space
Step 3) Network with Potential Buyers & Good General Contractors
Many online communities and forums host real estate buyers and sellers, which is a good place for you to start finding some deals and finding potential buyers and even experts in real estate that can help you again in the future.
A good general contractor is key to making sure all your repairs are done correctly and quickly with the best bang for your buck. This is incredibly important for you since a general contractor will do most of the repairs you need to do to your home. Make sure you find one that you know does a great job and at a great price! IF you’re all about DIY, we suggest you take that route since this will be most of your investment’s secondary cost.
Step 4) Make an Offer
Flipping homes is becoming a lot more prevalent, and the market is buzzing with buyers. Make sure you put an offer on as many homes as you can. If the house has a great listing price, expect that there will be many bidders if you keep getting outbid, don’t fret! Try and sneak past the competition by going door-to-door and making offers or hiring an investment group to do all the hard work for you!
Step 5) Re-list and Sell
The most common way to re-list your home is to find a real estate agent who can take care of the ins and out of the process. These agents are licensed and have access to different platforms to list your home, and they have the network to get the job done.
You can also choose to sell your house by yourself. Yes, you would save on the realtor fee, but you would spend a lot of time on paperwork, finding potential buyers, showing the property, and educating yourself on real estate laws and procedures in your market.
Flipping homes is very profitable. Most of the millionaires and billionaires we think of when it comes to real estate made most of their fortune from flipping homes. Yes, it is not very easy, but nothing in life that’s worth it is simple. Whether you hire a professional or follow this article (even in its complexity, it can be broken down into five steps) understanding your finance options, understanding market & costs, Networking & good contractors, Make an Offer, and Re-list & Sell.
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