Flipping Houses For Beginners
For beginners, flipping houses requires business knowledge, skills, planning, experiences, and capabilities.
You need expert insight with a strategy to be successful in the real estate industry.
We also called Flipping wholesale real estate investing – a type of real estate investment strategy where an investor buys a property not to live in but renovates or makes a sound investment and resells it for a profit.
What Does Flipping Houses Mean?
In the USA, Flipping Houses involves:
- Buying an investment property with cash.
- Renovation process (rehab).
- Selling the house for a profit ASAP.
I’m sure you have watched house Flipping Shows and fantasized about having a dream business like this and making a nice tidy potential profit.
For Noble Sky International, our average Flipping process occurs anytime from 9 months to 15 months.
A part-time investor’s investing period is more conservative in Asia – anything within five years and viewed as a short-term flipping horizon.
Let’s start with a $100,000 budget.
Do you look for foreclosed homes or distressed properties, buy it for a song – $10,000.
You put some work in and work quickly to sell the house for profit.
Preferably sell the house for $100,000 to $200,000 range – again, charming in your daydream.
You can make a handsome profitable 54% ROI (return on investment), say in two “glorious” weeks off your purchase price with a quick sale?
I say “glorious” because the term “reality TV” applies here.
Guys, listen to me.
Those are television shows.
They are supposed to make everything look easy.
Buy distressed properties, make a few cosmetic fixes, put it back on the market, and make a considerable profit.
At least half-dozen shows on television feature friendly, good-looking, well-groomed property investors who make the process look fast, fun, and profitable.
It means everything you watched is scripted.
The Flipping Shows have a movie director, actors, and even the handyperson as a paid talent.
“What about the house?” you ask, “surely that is real?”
Reality TV for House Flipping is NOT real.
Who Are The Real House Flippers?
House Flippers are property investors who know something that home buyers usually don’t.
They have ready cash and consider a property an “investment” rather than a “home” they want to live in or use.
Most of all, investors will buy the ugliest distressed property on the street.
You and I might know of people who buy a house with cash.
We are not saying that it’s “haunted” or anything like that, but it is just plain “ugly.”
Do you know of any property that is overgrown with a junk vehicle permanently parked out front?
The fence or the roof is leaning and possibly falling over.
The paint is peeling; the wall has wide gaps.
Well, you may think to yourself that the house is just impossible to fix up.
Who would want to buy an old property with cold hard cash?
The serious property investors would do that.
Pay with money upfront.
The bottom line is this: Buy a “dilapidated” property.
Don’t take a loan or mortgage.
When you buy in cash, you have what we call Instant Equity.
How is this possible? How much cash? Who has this kind of money?
You are right to think that no one buys anything with cash these days.
Here’s something most people don’t realize.
When you buy an old house that no one wants in an up-and-coming neighborhood – it just means that no one else will invest in the property to improve it.
All you need to do is to work with experienced contractors to get everything in order.
Then, improve on it to get an average homebuyer to get a move-in ready home.
The truth is the reality TV stars make things look incredibly easy.
You don’t have to work with contractors and real estate agents or deal with labor and material shortages.
TV shows have a few episode segments to shoot the video clip.
Hence, TV investors can make a hefty return over a relatively short time frame (by the time an episode ends!)
Buying A Flip House in CASH
Few people buy a property with Cash in Asia for two reasons
- The properties are too expensive
- They need to have proof of income that matches their taxes.
In Asia, almost all property investors buy their properties with a bank loan.
As far as interest rates go, a $100,000 house at 4% or 4.5% per annum at a 35-years loan period will eventually cost you $195,628.
If you buy in cash, you will only need a house with a willing seller and a lawyer to seal the agreement.
Would you buy in cash?
The Truth to Flipping Houses For-Profits
According to data ATTOM Data Solutions published in its 2019 US Home Flipping Report – In 2019 alone, 6.2 percent of all home sales in the nation are Flipped homes.
The figure represents an 8-year high, and that’s plenty of homes getting flipped.
The US Housing Market’s Combined Value Hit USD33.6 Trillion in 2020.
Flipped Homes alone are USD2.0832 trillion.
So why isn’t everyone raking in the profits and making a killing on the real estate market?
While the road to real estate riches isn’t paved in gold or based solely on curb appeal and “sold” signs – many would be Flippers overlook the basics as they are inexperienced.
Flipping houses as a profitable business requires knowledge, business acumen, and planning.
What are the biggest mistakes a potential House Flipper can make before finding that pot of gold?
Read on before you jump right in and head to the USA with your stash of cash.
4 Top Mistakes House Flippers Make
A professional house flipper needs to make a lot of sound business decisions.
Unfortunately, most novice House Flippers make costly mistakes when they first start.
I was one of them – before I started Noble Sky International.
In 2014, my first foray into the US was to buy properties from county auctions.
As a novice, I made my Top 4 Rookie Mistake all at that same time.
I was emotional and wanted to outbid everyone else for the NEXT property on the auction list.
I sank my last dollar in the Property Blind, without actually seeing it much less to get a contractor’s estimate for Rehab Costs.
It wasn’t in a desirable neighborhood.
When I took possession, it was a rundown shed of a house with its interior wholly burned out to my utter dismay!
If that was not bad enough – the county put me on notice to tear down the property!
There was no salvage value as the county had deemed the property to be unsafe.
Yet, it made it to the auction list.
Flipping Houses include getting the rehab or renovation done quickly.
My 4 Top Mistakes As A Novice House Flipper
• Being Emotional
• Buying Blind
• Sank My Last Dollar
• Bought A Condemned Property
You can save money and angst by avoiding these common house flipper mistakes.
Based on the list, which is not exhaustive, there’s a lot of stuff that TV shows don’t show you in the limited time – you get to find out everything else yourself, just like me.
10 Common Mistakes You’ll Want to Avoid Flipping Houses As A Beginner
Mistake #1 – Be Your Own Expert
Mistake #2 – Buying A Property Blind
Mistake #3 – No Research or Site Inspection
Mistake #4 – Miscalculating Rehab Cost
Mistake #5 – No Construction Insurance
Mistake #6 – Over-improving the Property
Mistake #7 – Not Knowing The Market
Mistake #8 – Zoning and Building Permits
Mistake #9 – Forgetting About Taxes
Mistake #10 – Overpricing When Selling
How Flipping House Works.
Sometimes called wholesale real estate investing – Flipping is a type of real estate investment strategy in which an investor purchases a property and sells it for a quick profit.
For example, a real estate investor purchases a fixer-upper in a “hot” trendy neighborhood.
He makes substantial renovations and then puts it on the market at a price reflecting its new appearance and upgraded amenities.
That profit is derived from the price appreciation because of
• a hot real estate market with rapidly rising prices
• capital improvements made to the property
Investors who Flip Properties focus solely on the purchase, rehab, and resale of those properties.
Once you learn to do this correctly, there is nothing to stop you from generating a steady flow of income by engaging in multiple flips.
You can do it as frequently as possible with enough capital in cash to buy the next property.
So, how do you flip an investment building or house?
Like most other investments, you will want to buy low and sell high in the simplest terms.
At Noble Sky, our strategy is to complete the transaction quickly to limit the time your capital is at risk.
Rather than using the old buy-and-hold strategy, we recommend the following before you even purchase your property.
1. Research the location, know the local market
2. Inspect and get an accurate estimate for rehab
3. Factor flipping a house for profit at min. 30%
4. Buy the property below market value.
5. Rehab and Sell below market value
The focus is on knowing the cost beforehand and speed as opposed to maximum profit.
Most people lose money on their property by holding on to an unrealistic price that the market is unwilling to pay.
Each day that passes will cost you more money associated with owning a property.
- Property Taxes
How to Start If you want to Flip Houses?
First, before you ask why in the United States?
Indeed, you think to yourself – “I can do this in my city and backyard.”
While you can do the same back home, you are limited by some setbacks – besides, it could be more complex and expensive than you ever imagined.
As with any other small business, the endeavor will require
- market analysis
If you think you can get rich quickly by flipping a home, you could end up in the poorhouse.
These are the five crucial mistakes to avoid if you are thinking about flipping a house.
The Top 5 Must-Haves For Flipping Houses
These are the five mistakes to avoid if you are thinking about flipping a house.
These are the five crucial mistakes to avoid if you are thinking about flipping a house.
The Top 5 Must-Haves For Beginners Before You Flip Houses
Our best piece of advice is to limit your capital risk while maximizing your return potential.
Real estate investing tips & Key Takeaways in keeping in mind before buying
- Do an Investment Property Analysis
- Don’t overpay for a property
- Know its true worth, i.e., price
- Know the necessary repairs or upgrades
- Get an accurate cost estimate.
When you have that information and the right mindset, you can then figure an ideal purchase price.
How much to pay to buy a property for Flipping?
Remember, you will not live there, so you don’t have to like a property before buying.
An important point to stress repeatedly is that you buy a property for profits and nothing else as investors.
You will want to put in the minimum repairs and have a color scheme appealing to buyers.
There goes your dream of playing interior designer for your Flip properties.
The fact is you want to have as little attachment to the property as possible.
The sooner you get everything up to speed and resell it on the market, the faster you make your profits.
What Is the 70% Rule in Real Estate?
We start with the after-repair value (ARV) of a property and work backward.
The ARV is what a house is worth after it is fully repaired.
An investor should pay only 70% of a property’s after-repair value (ARV) minus the repairs needed.
Here’s a quick example:
Home ARV: $150,000
Repair Cost: $25,000
70% rule means $150,000 x 0.70 = $105,000 – $25,000 = $80,000.
The investor should pay only $80,000 for the property.
However, the rule is not exhaustive as changing market conditions will affect any assumption you made initially of the average cost of the house.
Beginners Must Know Rules Before Starting A House Flipping Business
Before you dabble in real estate, you need to answer two questions.
What is your investment goal? How much money do you have to invest?
Once you are clear on your goals, you need to have your ready cash to start this business.
#1 Not Enough Money
Investing in real estate is expensive.
It is never cheap.
If you struggle to save for a down payment and don’t qualify for a loan back home – you may not have enough money to invest in US real estate.
The first expense is the property cost which you need to pay in cash.
We must also factor in rehab costs or a renovation budget to fix the house and sell it for a profit.
The sale price must exceed the combined acquisition cost, the cost of holding the property, and renovation costs.
- A Simplified Cost of Rehab
- Kitchen $25,000
- Bathroom Remodels $10,000
- Add Bedroom $30,000
- Taxes, Utilities & Misc. $ 5,000
If you uncover an unexpected structural problem with the property, you may see your gross profit dwindle to a net loss.
Don’t forget the capital gains taxes, which could chip away at your profit.
#2 Do You Have Ample Time
Flipping houses is a full-time business and a time-consuming venture, not a hobby.
It takes months to find, research, and buy the right property at the right price.
Once you take possession of the home as the owner, you will be responsible for its upkeep.
You need to invest time to fix it up.
You might think that you want to be your own expert and go it alone.
With a day job, the new property takes all your evenings and weekends up.
Even if you paid the workers, you still need to supervise the activities like ordering and taking delivery of building materials.
If you hire and pay others, it will reduce your profits considerably.
Upon completion, you need to arrange an inspection for compliance with building codes – before you can stage and sell it.
If it doesn’t comply with building codes, you’ll need to spend more time and money to bring it up to par.
The Next step – is to stage the house and show its potential to prospective buyers yourself.
You will need to make multiple trips commuting to and from the property. If you use a real estate agent, you need to pay a commission.
Is that worth the hassle?
For people with a day job, you can earn more with a steady paycheck and no risk.
You get to spend your weekend and holidays away.
The best part is to combine both – keep your day job and leisure time and see how Noble Sky International can work out the best strategy for you.
#3 Not Skilled In Construction Matters
You might have carpenters and plumbers who seem to know all the best deals as a side income to their regular jobs.
They have the contacts, knowledge, skill set, and experience to find and fix a house.
Overseas workers may have union jobs that provide unemployment checks during winter while working on their side projects.
“Sweat equity is the most valuable equity there is. Know your business and industry better than anyone else in the world. Love what you do or don’t do it.” – Mark Cuban.
The real money in house flipping comes from sweat equity.
For the handyperson who can roof a house, hang drywall, lay the carpet, remodel a bathroom and install kitchen cabinets – you have the top skills to flip a house.
That is, if you can do this as a full-time job.
If you need someone to turn on the circuit breaker and can’t tell a Phillips-head screwdriver from a plier – you will need to hire help.
#4 Not The Right Knowledge
Having the proper knowledge includes more than just picking the right property, in the right location, at the right price.
You need to know how the law of the land affects your flipping houses.
- applicable tax laws
- zoning laws
- building codes
Example: Say in a neighborhood of $100,000 homes.
Do you expect to buy one at $60,000 and sell at $200,000?
Aside from knowing the market value, it would help if you were realistic about your expectations and profits.
Just as in a traditional community of proud homeowners, do you expect to find a distressed property on sale for a song?
Even if you snapped up a house in an auction at 20% of its market value.
You have to pay Closing Costs, the fees due to closing a real estate transaction on top of the property’s purchase price.
You will need to know which rehabs to make and which to skip.
A clear understanding of the applicable tax laws and zoning laws is essential; some heritage areas have certain positions about remodeling the old buildings.
#5 Not Enough Patience
Novice investors rush in to buy the first house that they see.
Professional investors take their time and wait for the right property price to drop.
They have the contacts and a network of real estate agents, reliable contractors, and a pool of other experts to rely on for help.
The moneyed often play a waiting game.
While Novices expect to rush through the process, slap on a coat of paint, and earn a fortune.
Professional investors understand that buying and selling houses takes time and knows their margins before investing in any projects.
Beginner House Flippers needs to source for help every step of the way.
In their efforts to minimize costs and maximize profits, Novice sometimes burns a hole in their pockets instead of making a slim profit.
The Bottom Line of Flipping Houses
If you want to flip houses, find out more and understand what it takes and the actual risks.
Actual Costs are often much higher than a Novice Flipper has in mind.
- cost for these renovation projects
- actual money
Making a nice profit quickly by flipping a home is not as easy as it looks on TV.
It would be best if you did the hard work.
It is much more than sneezing as you remove the carpet and push back a wall to add a new bedroom.
Experienced flippers know the financial risk and many other moving parts involved.
However, if you are interested and willing to learn, you have a new career carved out for you.
Congratulations, you can become a House Flipper.
Moving Forward in Learning – Invest in Real Estate
Real estate investing can help individuals build wealth.
It may not make you wealthy overnight, but it is the best vehicle to increase your net worth in a shorter timeframe.
Buy Low, Buy CASH, Rehab Smart, Sell Fast, or Rent.
House flipping can net you a significant windfall if you do it correctly.
The process is a math game where those willing to take on the challenge can make substantial profits- cash.
If you want to grow your real estate portfolio exponentially and add to your wealth, you can add.
Multifamily properties. Rent these out to produce monthly cash flow.
The cash flow can be saved and reinvested into more deals.
You can also buy a property cheap, rehab it and rent it out.
Some properties can be turned into the proverbial golden goose. You keep earning rent month after month to build your pile of cash.
After a few years, the rental would have paid off your initial investment.
Remember the mantra, “Buy Low, Buy CASH, Rehab Smart, Sell Fast.”
LESSONS TO LEARN FROM THE 2007 – 2009 RECESSION
In 2008, subprime mortgages proved to the US housing crash.
The credit crisis resulting from the housing bubble bursting is an important cause of the 2007–2009 recession and trauma.
If you remember, mortgage loan companies began to loosen the lending requirement for unqualified borrowers to buy a house.
Once the defaulter started to rise, the US housing market went under when borrowers couldn’t pay their mortgages anymore.
In many local markets, prices are now comfortably above the pre-recession peak.
When Americans lose their jobs or can’t pay their mortgages anymore, they lose their homes in short-sells or foreclosures.
The house price is now comfortably above the pre-recession peak, but the current market situation will see more properties going down.
Many residential and commercial property owners see their properties go “underwater” with foreclosures at all-time highs.
Real estate auctions are bringing real estate buying opportunities to many.
For auctions, buyers decide the fair value of the property that they are bidding for. Auction properties are “auctioned off” and not “sold” at an attractive price.
You can buy severely discounted properties in the US.
Before bidding, you need to know that you are buying the property with ready cash. You will have to pay for the property in full immediately after winning the auction.
Is there a difference in buying cash? Yes, you can join other first-time buyers to auction because it can save you money.
Rehabbing is all about knowing the property market. Buying an auction property is a great way to develop an investment quickly.
>> You may also be interested in our featured article on “How to start a house flipping business.”
If you want cash flow, you need to know how to Rehab Smart.
First, let’s draw a line to differentiate between a quick fixer-upper and a total rehab.
A fixer-upper is a structurally sound home.
All the plumbing, sanitation, electrical, and heating are in order.
It needs some cosmetic changes to bring it up in value with the rest of the neighborhood.
You probably need to include paint, new carpeting, or refinished floors.
This may or may not involve non-essentials like updated kitchen cabinets or lighting fixtures.
Things that don’t require a lot of heavy lifting.
A rehab project can include replacing structural elements, straightening a roof, replacing the roof covering, repairing water damage, and replacing electrical components.
You can bring up the property’s value by rehab works, including tearing down walls and putting in an extension for a bedroom or the addition of a bathroom.
Chances are, for total rehab, you will need to engage a local contractor well versed with the law of the land.
You will have a quote for an actual repair cost to Rehab Smart before putting your money down on the auction property.
Timing is everything when trying to complete rehab.
To maximize your return on investment (ROI), you need to keep to schedule.
Every day your property goes unsold, your returns will diminish.
The longer you hold onto a property, the more you will have to pay taxes, insurance, loan repayments, and other utility costs.
You don’t want to have your money tied up in a property you haven’t sold.
How to sell your rehab as fast as possible?
There is no excuse for not having a sales plan ready by the time you complete the project.
A good sales plan includes staging, using the right local agent who knows your new rebab’s market value, prospecting new home buyers, and closing deals.
By the time the home is ready for the market, you should sell and sell fast.
Do you remember my reference to the Goose that Laid the Golden Eggs?
Well, one-way real estate investors learn this – sometimes it’s better to rent than to sell.
When obtaining a mortgage becomes complicated for new homebuyers, they may look for a home to rent instead.
Many residential and commercial properties see their properties go “underwater during the recession,” with foreclosures at all-time highs.
The recession is the time that the rental markets flourish.
People still need a roof over their heads, no matter the economic situation.
When they can’t afford to buy, they will rent first.
HOW CAN NOBLE SKY INTERNATIONAL HELP ME INVEST IN US PROPERTY FLIPPING?
I have personally flipped dozens of investment properties.
I enjoy the passive income and the freedom that this lifestyle gives me.
I now teach students the fundamentals of Real Estate Auction, where you learn valuable key points. I teach my students how to:
- Identify the types of properties that are sold through real estate auctions.
- Identify types of the real estate auction format.
- Employ methods to shortlist valuable capital gain properties on the market
- Learn how to go in the 50 US states divided into a total of 3,007 counties
- Understand the benefits to buyers in a real estate auction
- Learn how to gauge the market trends
- Project future use of auctions to capitalize on the real estate market
- Learn how to purchase properties in the USA and flip them (resell them on the market).
- The process of Flipping can be continuously repeated.