Just recently I had an aspiring property flipper call me after seeing my vehicle magnets that say “I Love Scary Houses.” She was looking to connect and learn how to go about becoming a real estate flipper.
Flipping houses means you buy a property that’s in poor condition for a low price, invest in the renovation and repair of that property, then sell it for the highest market value. Hopefully when it’s all said and done, after closing costs, you make a tidy profit.
I work with many investor and I’m an aspiring investor myself. Although I have yet to do my first flip myself, I can give this advice that I took myself: educate yourself. I’ve spent the last few years taking every class I can find at the local Realtor’s association and I also joined CFRI (Central Florida Realty Investors) to take classes with them. CFRI is an excellent resource not only for classes but for networking with seasoned flippers and renovation professionals.
One of the biggest hurdles is figuring out how to pay for this endeavor. CFRI can help with that too. If you have cash on hand, that would be ideal. Houses in poor condition will not qualify for an FHA or VA loan (which have the lowest down payment requirements). Conventional loans will require some sort of down payment. I learned that an investment type loan requires probably like 15% down (check around) and that money can’t come from another investor or hard money lender. Then you still need money for the renovations. You may be able to partner with someone in a JV (joint venture) or hard money may be available. Hard money is great, but you pay a premium interest rate for it.
After you’ve armed yourself with the knowledge of HOW to do flipping RIGHT, you need to network and begin assembling your “team.” If you’re not a real estate professional like I am, you need a Realtor to help you look for properties. Ideally, you might find a For Sale By Owner (FSBO) or distressed property and make a deal directly with the owner. If the seller does not have to pay a Realtor commission, you may be able to negotiate a lower sale price. If you are able to pay cash and close quickly (no inspection or appraisal required), you really may be able to get it for a steal.
Once you have a property in mind, you’ll want to call in the contractor on your “team” to verify your estimates of renovation costs are on target. Make sure you figure into your budget some sort of contingency amount. This is an amount for unforeseen renovation or repair costs. There is nothing worse than a costly surprise eating up your potential profit and now you flipped a house and made no money.
You’ll want to devise a list of your favorite licensed general contractors, HVAC professionals, plumbers, electricians, wholesale cabinet distributors, painters, cleaners, landscapers, etc. When you network with other flippers you’ll also learn who to avoid, with whom they’ve had a bad experience. If you can do some of the work yourself, you’ll save some money.
This is just a basic introduction. Please do take the time to learn how to do it right. As a Realtor, I often see houses that a newbie flipper started and then gave up. Or, they tried to do what they saw on HGTV and realized it’s not as easy as it looks. Shoddy workmanship will NOT get you top dollar.
If you’d like to discuss further, feel free to call me at 407-236-6559 or visit CFRI.net.