Content of the material
- 1) How to sell house
- Earnings: $400,000 after 5 Flips
- Earnings: $27,936.90
- How to get started with house flipping
- 3. Not Enough Skills
- 5. Not Enough Patience
- You Might Have to Sell Your Home for Less
- What is ARV?
- How is ARV calculated?
- How Does a House Flipper Decide What to Offer for My House?
- 5) How to maximize profit
1) How to sell house
Earnings: $400,000 after 5 Flips7/10
Though he eventually netted a healthy nest egg, Carl, a house flipper in Colorado, spent “at least 2,000 hours” doing renovation work “with no financial gain.” As he learned from his experience flipping a house during the Great Recession, some factors are beyond a flipper’s control. Changing economic conditions can “derail the best-laid plans.” istockphoto.com
Melissa, a self-described “DIY addict” and real estate agent in North Atlanta, embarked on her first flipping adventure as an indebted young professional. The result? Enough money “to pay off my car, 3 credit cards I had balances on, put some money toward my student loans and set cash aside for savings.” istockphoto.com
How to get started with house flipping
Since flipping homes isn’t something you can get into overnight, you’ll want to make sure you have your finances in order and the right properties in mind first.
- Set a budget. A big financial drain is not having enough money to finance your project. Don’t go in conservatively; Pi suggests multiplying your current budget by five times. Whatever you think is enough, probably isn’t. Especially if this is your first time.
- Find the right property. If you don’t have a massive budget, look for properties that best fit your current finances. Browse through foreclosures, auctions and short sales to see which ones best match up with your budget and renovation ability. Don’t hesitate to seek the guidance of a real estate agent who has experience working with house flippers. This agent can help you research comps and price-growth projections to find neighborhoods and homes that will give you the best ROI.
- Make an offer. With your financing in line and the right property to take on, you can make an offer. Professional flippers often calculate a home’s after-repair value (a specific equation to determine its ultimate worth) to determine how much to bid. It’s OK if an offer falls through; you can have multiple properties in mind if one doesn’t work out.
- Set a timeline. Not all property renovations require the same amount of money, which means they don’t require the same amount of time, either. Whether it’s one month or six, give yourself enough time to make the appropriate repairs and upgrades, and factor in time for building inspections (if needed).
- Hire trusted contractors. Unless you’ve got the chops to handle repairs and renovations yourself, you’ll want to hire reputable tradespeople to do the necessary work. Some contractors have full teams to work on all areas of the home, but not all. Check licenses and references for contractors you want to hire, and also make sure their quotes are in line with your budget and they can meet your timeline.
- Sell your property. After the updates have been made, it’s time to put your property up for sale. While you could sell it yourself, a real estate agent can help you market the home to the right buyers and widen your reach.
3. Not Enough Skills
Professional builders and skilled professionals, such as carpenters and plumbers, often flip houses as a side income to their regular jobs. They have the knowledge, skills, and experience to find and fix a house. Some of them also have union jobs that provide unemployment checks all winter long while they work on their side projects.
The real money in house flipping comes from sweat equity. If you’re handy with a hammer, enjoy laying carpet—and can hang drywall, roof a house, and install a kitchen sink—you’ve got the skills to flip a house.
On the other hand, if you don’t know a Phillips-head screwdriver from a flat screwdriver, you will need to pay a professional to do the renovations and repairs. And that will reduce the odds of making a substantial profit on your investment.
245,864 The number of single-family homes and condos that were flipped in 2019, according to ATTOM Data Solutions.
5. Not Enough Patience
Professionals take their time and wait for the right property. Novices rush out to buy the first house that they see. Then they hire the first contractor who makes a bid to address work they can't do themselves. Professionals either do the work themselves or rely on a network of pre-arranged, reliable contractors.
Novices hire a realtor to help sell the house. Professionals rely on "for sale by owner" efforts to minimize costs and maximize profits. Novices expect to rush through the process, slap on a coat of paint, and earn a fortune. Professionals understand buying and selling houses takes time and that the profit margins are sometimes slim.
You Might Have to Sell Your Home for Less
One of the first questions you might have about selling to a flipper is, “how much will a flipper pay for a house?” To answer this question, we first have to define “After Repair Market Value (ARV).”
What is ARV?
After Repair Market Value, or “ARV,” is the formula typically used by house flippers when deciding what to offer to pay for your home. ARV is the price a flipper expects to be able to sell a house for after repairs are completed. Put another way; it’s the estimated future value of a home after being fixed up.
How is ARV calculated?
To calculate the after repair value of your house, a flipper will look at what comparable properties in your area have sold for in the past few months. The average of those homes is your ARV.
Many flippers will make cash offers for the after repair value of your home, minus any additional selling costs. Selling your house to a flipper will typically result in a lower offer. However, when you factor in the money you would have needed to put into the home to sell on your own, selling to a flipper does make financial sense in many cases.
Be sure to check out a real life example of the ARV formula by exploring our section on how we buy houses in Massachusetts…
How Does a House Flipper Decide What to Offer for My House?
Many house flippers will use what is known as the 70% rule to determine a purchase offer for your home. The 70% rule is a formula that allows for an offer estimate—using your property’s potential after repair value (ARV). The rule stipulates that a flip investor should not offer more than 70% of a property’s ARV in order to profit from the deal when the house sells.
Using the 70% rule does not guarantee that the house flipper will receive a certain specific return on their investment, but it does provide an estimate that takes into account the many expenses that come with repairing and reselling a home, for example, permits, construction costs, taxes, utilities, closing costs and any unexpected costs to bring the property to the market in move-in ready condition. It is important to keep in mind that you will not receive a retail offer from an investor who will likely need to put tens of thousands of dollars of work in the home.