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Saturday, August 28, 2021

How to Flip Houses: A Starting Guide for Beginners

If you're new to purchasing and flipping houses, you've definitely noticed that there's a lot to learn. Buying and flipping properties aren't as easy or straightforward as it appears on TV. However, if you take the time to learn how to do it correctly, you can successfully flip properties. There are also methods for shortening your learning curve and putting precautions in place to reduce your costs.
 
I know readers out there know that I am a stock investor more than a property investor. But one of my best friends who live in San Francisco gives me the idea that I can be making money flipping houses. He is currently working in a home construction company. Moreover, he is learning how to renovate and build houses. I believe there are opportunities for us to work together and share profit in the future. I already have a stock portfolio that holds U.S. equities; however, I don't mind expanding my business portfolio to other ventures.
 
I think the real-estate business in the U.S. has much room for me to grow my assets. Moreover, I am interested in having my own Business Green Card to travel back and forth to America. I love San Francisco since I grew up over there. I want to be able to spend quality time with my friends who live there. Due to this reason, I decided to write an article on this topic. This article will teach beginners how to flip a house and some mistakes to avoid along the way. I am also going to talk about my plan in this business niche. 

What Does House Flipping Mean?
Buying a property, improving it, and then selling it for a profit in the process of flipping houses. House flippers improve properties that most buyers are unable or unwilling to repair to the degree where they meet buyer desires. Keep in mind that the average buyer wants a move-in-ready property; therefore, house flipping investors put in much effort to completely rebuild a shambled home and make it ready to move in without any additional work. It will require time, effort, and money to complete.


How House Flipping Works.
House flipping is the practice of purchasing distressed properties, renovating them, and then reselling them for a profit. These properties are usually found through foreclosures, bank short sales, or property auctions.
 
You must spend your money carefully and invest in undervalued properties if you want to be successful at flipping houses. These are usually features that need much attention. Following that, you'll need to invest in renovations that will increase the property's resale value and appeal to a possible buyer. You'll need to list and market the property after the renovations are finished.


How to Start House Flipping In 7 Steps.
Before you begin flipping properties, you must understand the basic procedures. This will improve your chances of success while also lowering your financial risk. Here are seven steps to getting started with house flipping:
 
1. Know Your Neighborhood.
It would help if you spent some time researching the real estate market and deciding on the best location to invest in before getting started. Working with a real estate professional who can guide you through the process is an excellent option.

Not every market is conducive to property flipping. If your house flipping business plan only has $15,000 to work with, you probably don't want to start in markets where homes start at $800,000. Even investment property loans and finance aren't enough to fill the void!
 
The less money you have to deal with, the lower the prices of properties you'll be able to afford to buy. Although investment property financing can cover the entirety of your acquisition, the difference between a 20% down payment on a $50,000 property and a 20% down payment on a $500,000 property is still significant.
 
What kind of budget will you be working with? What are the markets in which you can afford to flip your first home?
 
Many real estate investors categorize communities into "classes," which range from A to D. The wealthiest housing markets, filled by higher-income professionals, are known as Class A neighborhoods. Class B communities, which are solidly middle-class, are one step lower.
 
Class C areas have a distinct blue-collar, working-class vibe to them. Class D areas, at the bottom of the scale, cater to the lowest-income earners.
 
While some investors specialize in flipping houses in Class D communities, they come with additional hazards. Insurance prices in some low-income neighborhoods will be more incredible concerning the purchase price. You'll probably be flipping to a fellow investor (a landlord) rather than a homeowner in many low-income regions.
 
Flipping a property to another real estate investor usually means reduced profit margins but a smoother transaction procedure. Investors can settle in immediately, know what they're looking for, and know-how to buy swiftly and efficiently.
 
It's a good idea to hire a general contractor to appraise a property once you've found the one you're interested in buying. This will assist you in determining how much work has to be done and whether or not the house is still within your budget.


2. Use The 70% Rule to Plan Your Budget.
Real estate investors are business owners who require a business plan to succeed. It doesn't have to be flashy or full of irritating business jargon. It must, however, include a budget, a timetable, and the scope of the project.
 
How much money do you have to put up? How much money do you want to set aside? Do you have enough cash on hand to cover renovation expenses until your lender reimburses you?
 
What kind of scope do you think you'll be able to handle? We normally recommend starting with cosmetic changes such as kitchen and bathroom updates, new flooring, new paint, and fixtures for the initial house flip or two. This is especially beneficial if you're flipping houses on a shoestring budget or with no money at all.
 
Avoid structural issues at all costs. Avoid mechanical issues because they require permits, something you don't want to deal with on your first property flip. Yes, your profit margins will be reduced. However, the job will be completed considerably more quickly, with less danger, and lower cost.

Real estate investors frequently refer to the 70 percent rule. According to this concept, an investor should only spend 70% of the property's after-repair value (ARV) minus the necessary repairs. The ARV is the value of a home after it has been completely renovated. For example, if a home's AVR is $200,000 and requires $25,000 in repairs. So 70% of the AVR is $140,000, and after subtracting the repairs, you're left with a total of $115,000. It would help if you didn't have to pay more than $115,000 for the house.

 
3. Assess Your Skill Set.
As a house flipper, specific skill sets will help you succeed. Construction, real estate, and design knowledge, for example, are practical abilities to have. It's fine if you don't have those skills, but you'll need to know where to go for specialists that do.
 
Before you start flipping houses, you should put together a team of professionals to help you. Lenders, real estate agents, insurance agents, and contractors are examples of people who can assist you find, fix, and sell a home.
 
I need to form a team of my own. I already know a good friend of mine who is a contractor, and I am also asking one of my other good friends to get his real estate license. I believe if all of us can work together, we can make a healthy profit. I want to be able to get great deals for my property investment.

 
4. Finance Your Project.
The following step is to determine how you will fund your project. You'll need to get preapproved for a loan if you don't have any cash on hand to spend toward the project. To do so, you'll need a decent credit score, as well as a 20% down payment or some form of collateral from the bank.
 
 "Great, my offer was approved..." is the last place you want to be. "However, how am I going to raise funds?"
 
Make sure you have a lender who can fund your deal before you make an offer. Which is a good time to point out that Lending Home's hard loans can cover up to 90% of the purchase price for investors flipping houses and 100% of the refurbishment costs.

 
5. Decide On and Buy Your House.
One of the most challenging components of flipping a house is finding the right property. That's because you have to think about the house's potential resale worth as well as how much it costs right now.

Foreclosed, distressed, and fixer-upper properties are all viable possibilities. However, you should consult with a real estate agent and a contractor to determine the scope of the work that has to be done.
 
You can make an offer and close on a house once you've discovered the appropriate one. You should expect some competition from other possible purchasers if the house is an excellent value. Make sure you know how much you can afford to pay for that house while remaining profitable.

 
6. Build Sweat Equity.
If you're new to house flipping and have a limited budget, developing sweat equity can help you save money. This refers to any unpaid work you'll do on the project, whether it's physical labor or mental effort.
 
Sweat equity is a crucial part of creating a successful firm for many entrepreneurs in the beginning. It's what provides them with the resources they require to keep the momentum continuing.
 
7. Flip the House.
It's time to resell the house when the repairs are finished. Time is of the utmost at this point since the longer your home sits on the market, the less money you'll make. As a result, your goal should be to make swift changes and sell the house as soon as possible.
 
To assist you in listing the house, you'll want to deal with a real estate agent. The home can be listed in the Multiple Listing Service (MLS) database by real estate agents. They are also familiar with market variations and can assist you in determining the appropriate sales price.

 
Cost of Flipping a House.
The cost of flipping a house varies depending on the expenditures of acquisition, repairs, and the length of time it takes to complete the sale. Let's take a look at how much money you may expect to spend on a property flip.
 
Your Financial Investment.
It's all about the numbers when it comes to buying and flipping a house. You want to know that at the end of it all, you'll generate enough money to justify the effort and money spent. You'll need to budget for more than just the initial costs of purchasing and upgrading the home. You should also take into account the following costs:
 
 - Down payment
 - Property taxes
 - Insurance payments
 - Closing costs
 - Utility costs
 - Marketing costs
 - Real estate agent fees
 
Your Time Investment.
Of course, buying and flipping a house necessitates more than simply a cash investment; it also necessitates a significant time commitment. The amount of time it takes will vary based on the project's size and scope.
 
You can anticipate spending at least six to twelve weeks on the process of buying and flipping a home if everything goes according to plan. This process could be prolonged by many months if the remodeling project is delayed or if you need consent from a third party to purchase the property.


Is Flipping Houses Right For You?
House flipping can be a feasible business option if you go into it with the appropriate plan and carefully evaluate the financials. This technique, however, will not bring you instant success, and you may make numerous mistakes and lose money along the road.

This process may be made much easier with the proper team of specialists. Work with a knowledgeable real estate agent who can provide you with information about the local market and assist you in understanding the types of homes that buyers are looking for.
 
A skilled general contractor may also assist you in determining the existing state of a home. This will assist you in avoiding a money pit investment. Of course, you'll need to plan ahead of time for your financial requirements. The appropriate loan might make it easier for you to renovate and resell your home. 
 
My Future Real-Estate Business Plan in the United States.
My future plan in the real-estate business is quite different. I'm only interested in purchasing real-estates when the price is undervalued. Similar to value investing in the stock market, I want to buy properties that are on sale. I'm not sure whether I will sell the houses for profit but instead of planning to accumulate a pool of properties in my portfolio. I am then going to renovate and rent them out for cash flow.
 
I believe there are opportunities for my friend who lives in San Francisco to do this business venture. I hope to work together with my best friend, who is currently working in construction and home renovation. He is working hard and learning home renovation in the new job he is currently working at. As for me, I can help with the financing part. Since my dad has the financial capital, he can become the investor while my friend can help me renovate. I believe that by working together, we can benefit each other financially.
 
House flipping is a risky business, and it's simple to understand how adding debt to the mix makes it much riskier. I am only willing to purchase real-estates with cash. I'm not too fond of the idea of using debt to buy real estate. This is because House flippers who borrow money may have to pay interest for months, increasing the price they must sell the house merely to break even. In addition, When you utilize debt to fund a flip, you risk being desperate. If you can't sell the house, you'll have to drop the price and lose money. House flippers who only work with cash can wait out a weak market because they don't have interest payments piling up against them each day the property remains unsold. Most significantly, using debt to make any form of "investment" is a bad idea. Even with cash, trying to sell a flipped house for more money than you put into it is a gamble. Using debt in the process increases your chances of losing money if something goes wrong.
 
When I have a certain amount of assets in the United States, I will create a holding company so that I can run my own business. Applying this idea, I can probably get a Business Green Card so that I can travel back and forth to America (I still need to do more research on this). This is just a future plan, and it's still just a dream. However, I want to diversify my portfolio assets to countries such as the United States. This way, if anything bad goes bad in Indonesia, I still have something overseas that I can depend on.

I want my daughter to have the same opportunity as me of having an education abroad. In addition, I want to have a Business Green Card in the United States so that my future daughter can go there for her education (college & university). This is still a plan; I don't even have a girlfriend yet at the moment. But I already have some plans for what I want to do in my life.


Final Thoughts on Becoming a House Flipping Investor
It can be hard to learn how to flip a house and make your first deal. Make use of other professionals, such as your lender, contractors, home inspector, and Realtor. When in doubt, acquire a second and third opinion. Flipping houses is a team sport, so make sure you're constantly expanding your professional network.
 
Finally, seek guidance from seasoned house flippers who have gone before you. So you don't have to make the same mistakes; learn from their mistakes. But, most importantly, begin doing these measures right away! While research and planning will help you avoid mistakes, it is the action that will provide positive results and allow you to benefit from house flipping.

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