8 Steps to Start Your House Flipping Business
Before you start your house flipping business and leap-frog into your new passive income investment model, you need the know-how.
What is Flipping?
Flipping is used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling (or “flipping”) it for profit.
The term “house flipping” is used by real estate investors to describe the process of buying, renovating (rehabbing), and selling properties for profit.
You May Also Like These Investment Property Articles:
- Flipping Houses for Beginners
- 2021 Definitive Guide to Property Tax Lien
- 8 Insider Secret Real Estate Auction Tips That Makes Money
How has the Covid-19 pandemic affected the US property market?
Despite the Covid-19 pandemic, the United States has seen surges in demand for housing.
According to January 2021 data from the Mortgage Bankers Association, mortgage applications for new home purchases increased by 18.9% compared to a year ago.
How many homes are flipped in the United States?
According to ATTOM Data Solutions, curator of the United States premier property database, in their year-end 2020 U.S. Home Flipping Report – a total of 241,630 single-family homes and condos were flipped.
Yes, you can earn $50,000 by flipping a house.
You also need to be aware of the risk.
You can also lose money if you don’t grasp how to flip a house first before jumping right in.
Even brokers/agents, buyers, and sellers interested in real estate auctions may not know how Flipping works in the United States.
8 Steps to Start Your House Flipping Business
Let’s look at the eight steps to help make sure you understand how to start your house flipping business.
Step 1: Research the real estate markets
The US is data-driven so getting a Comparative Market Analysis is mandatory to your success.
Sometimes you hear this, “Not every market is a good fit for flipping houses.”
So, what do you do, and how do you know which market is the right one?
First, you need to know the types of investment property available in America.
What you call home in Singapore and Malaysia is very different in the USA.
You need to know the property types that people want to live in.
Where they want to live is also where they can get jobs.
When we do our research at Noble Sky International, we deep dive into the area of population growth and where jobs are readily available.
Next, we look at the type of population in these areas.
- Is this a college community or an area with good schools?
- What is the crime rate like in this area?
- Do you find a lot of retirees living here?
We can do all sorts of research and get a lot of data to look at and study.
But the most important thing is to be a realist.
I will ask you to ask yourself three serious questions.
- Do you have the money?
- Are you ready to start a business as a property investor?
- What do you expect to earn in terms of percentage over time?
Do you have the money?
- Answer 1: Yes
- Answer 2: No
- Answer 3: Maybe
Seriously guys, if your answer is anything apart from YES; I will say you are not ready.
Are you ready to start a business as a property investor?
If you live in Singapore or Malaysia, these rules apply when you want to start an investment.
- If you want to start any business, you will need capital.
- If you want to start a business as a property investor, you will need more significant capital.
- If you want to buy a property, you will need to qualify for a mortgage or bank loan to buy it.
What do you expect to earn in terms of percentage over time?
If you are happy with the Fixed Deposit rate you are receiving and want Zero Risks, then property investment will not give you immediate monthly returns.
If you have a Huge Risk Appetite and are already making more than 60% trading online, perhaps property investment may be too slow for you.
What you expect to earn in terms of percentage over time is not a one size fits all equation.
If you are already a property investor and want to diversify your portfolio to the USA, please feel free to contact us for a private meeting.
I would be happy to meet with you to discuss it privately.
For Newbies, Let’s start small.
Let’s look at your capital.
If you have $10,000 to start with, you wouldn’t want to be looking at a suburb where the home prices start at $1,000,000.
I know it. You know it too.
There is no end to financing that could ever bridge that gap!
You got to be real, guys.
No bank is ever going to approve that kind of loan.
With the little that you have, you need to look at lower home prices.
Find something you can afford.
There is a mega difference between a 20% down payment on a $100,000 property and a 20% down payment on a $1,000,000 property.
While you think about that, let’s look at the Property Classes that describe the neighborhoods you want to invest in.
How to Identify Property Class Types?
Property classes describe a potential real estate investment’s characteristics and the neighborhood in which each home is located.
Each class holds a specific value relative to the market they’re in and their “class” ranking, from A to D.
- Class A – The wealthiest housing markets (higher-income professionals, businessmen, celebrities)
- Class B – Solid middle-class
- Class C – Blue-collar (working-class)
- Class D – Low-income earners
Class A Property
A safe prime location in a good school district, newly built properties with high-end finishes, close to country clubs, access to highways, shopping, and medical facilities.
Class A properties are owner-occupied, well-maintained homes and neighborhoods, as they have invested directly in the area.
Rental in Class A rental properties is usually high in demand as the homes are newer and lower maintenance costs.
Class B Property
Class B Properties may be slighter older than Class A but are well managed with quality tenants.
The properties are more investor-owned and tenanted.
The building’s location and circumstances may allow the area to be “upgraded” to a Class A with improvement, renovation, or even façade upgrades.
Class B properties offer the opportunity for investors to create substantial cash flow.
Class C Property
Class C properties are typically more than 20 years old with visible deterioration and in higher crime areas.
These are predominantly investor-owned and occupied by tenants in lower socio-economic groups.
Class C properties carry the highest risk of any classification.
Even though the properties offer the potential for the highest cash flow, they need a lot of improvements and hands-on management.
Class C properties can be very lucrative investments with the right strategy and are only taken on by experienced investors and property managers.
How to Decide Which Property Class to Invest In?
Investors need to understand that each class of property represents a different level of risk and reward.
Class A properties generally offer lower cash flow than Class B or Class B investments.
The high demand for a Class A property means an initial higher purchase or acquisition cost.
These properties are higher in demand and are generally easier to sell.
What I tell my students is this.
Keep it simple.
Whether it’s Class A, B, or even C, all you need to do is find the ugliest property on the prettiest street, buy that cheap and rehab it to sell.
The right investment decision is one that you can value-add to the property to turn it into a home that people want to live in.
This is how you make a profit.
Again, it’s all relative.
Whether you want to spend your time targeting a Class B or Class C property for your first deal, remember you can always find an older-aged property to rehab.
What you need to do is to convince the owner to sell to you.
You might want to skip the bottom rungs of the ladder, the Class D neighborhoods.
You will not want to deal with the headaches that come with additional risks relative to the lower purchase price.
As in many low-income neighborhoods, where the majority are tenants, you will likely be flipping to a fellow investor (a landlord) rather than a homeowner.
Flipping to another real estate investor often means lower margins but a smoother sales process.
Investors can settle quickly, know what they’re looking for, and know-how to purchase with no muss and no fuss.
As a final note, if you’re looking at costly areas, consider investing in another place.
Step 2: Set a budget with a business plan in place
You need to have a mission statement for a house flipping business plan. This is a summary of your company’s purpose.
You have seen the “reality TV” shows. You like the lifestyle these real estate investors slash entrepreneurs project.
You think to yourself, “It’s a pretty cool way to make big bucks!” Stop right there.
Remember, real estate investors are entrepreneurs. They’re in business, and they have a business plan. It would help if you had a business plan to succeed.
Here’s a more detailed look at how to create a house flipping business plan.
You Plan the Flip and Flip the Plan
What this means is to get your budget, project scope, and timeline in place.
This is your business plan.
Please keep it simple.
It doesn’t have to be fancy or filled with corporate jargon.
Let me help you out with these questions to help you get started.
- How much do you have to invest?
- How much do you want to hold in reserve?
- Do you have enough to cover rehab costs?
- What kind of scope are you comfortable with?
- Are you able to hold the property until you sell?
As Newbies, I recommend that you start with a relatively new property for your first house flip.
Stay away from older properties that may have structural and mechanical problems.
If you need to tear down and rebuild, you will need permits and approvals.
I’m sure you don’t want to deal with this kind of hassle on your first house flipping deal.
I would recommend starting with relatively more straightforward cosmetic updates.
Change the kitchen cabinets, bathroom fittings, fix new flooring, change the fixtures and lights, and finally, a fresh paint.
Yes, your margins will be narrower.
What you want is to move the project along.
Speed is important.
With lower risk, you put in less cost to fix up the place; it just means you make a lesser profit.
Step 3: Get your financing in place BEFORE you need it.
Even Millionaires Have a BUDGET!
Seriously, it would help if you got your money ready.
You will need it.
Way ahead of starting your business, make sure you qualify for a mortgage and know what your limit is.
Is your bank able to fund you up to 90%, or is it 80% of the purchase price for investors flipping houses?
What is the percentage of rehab costs? Is it a full 100%?
Before you make an offer, make sure your bank or lender can fund your deal.
You will need the money in place.
The last thing you want to do is quickly develop the money when the negotiation has gone through.
If you need bridge loans for flipping houses, you need to do your homework.
Pay close attention to interest rates.
Compared to long-term traditional homeowner mortgages, interest rates will be high on all bridge loans.
Check and find out your total flipping costs, including all fees you need to pay.
Step 4: Start networking and working with contractors.
It would help if you networked to find the best resources.
The crucial part of flipping a house is getting the Contractor’s price or quotes in early.
You will want to know the numbers way before the property is under contract.
You do this by networking and start building relationships with contractors before you buy your first flip.
Getting a house ready for a flip involves the expertise of a good network of contractors:
- general building contractors,
- HVAC experts and
You will also need to know several reliable, lower-cost, well-rounded handypersons who will fix small things on the property.
Half of the house flipping business involves building a network of a home inspector, contractors, and a Realtor who can sell the property for you.
Step 5: Find a house to flip.
The most crucial part of learning how to flip houses is not the part that you see on “reality TV.”
You got to have a nose for good deals; this means buying below-way market value.
My team and I will deep dive into the research to find the properties.
We work out our margins ahead to know our numbers.
Getting a wide enough margin will cover many of your expenses like;
- Closing costs
- Rehab costs
- Realtor’s fees and
- Cost of your time and work
There are many strategies to find below-market deals on homes to flip.
Here are a few that you could consider working with;
- A Realtor to find on-market deals.
- Wholesalers to find off-market deals.
- Build a direct mail marketing campaign.
- Buy from an Auction.
Finding good deals for flipping houses is simply a test of patience.
Have a business plan in place. Remember that when the property looks too tempting to resist, the numbers don’t meet your minimum, pass, and keep looking.
You don’t have to buy the first property that comes your way.
You will want to buy the best property with the money you have.
If the project scope is more extensive than you can manage, believe me, it is larger than you can handle.
Step 6: Buy the house.
Now that you have won the auction, the next step is to pay the county.
The process takes time.
Once you have the legal paperwork in place, consider hiring a home inspector to conduct a comprehensive survey and get the numbers down for rehab.
If you are a newbie, you may want to stick to some minor interior modifications, cosmetic repairs, work to spruce up the exterior, and a new coat of paint.
For serious rehab of dilapidated properties, you will need to make sure that the property is structurally sound.
Then you will need to check that the plumbing, electoral and mechanical systems are in good working order.
These types of home inspections take several hours and are incredibly comprehensive.
Walk through the property with several contractors to get multiple quotes.
Each Contractor has a different approach to carrying out the works.
You must hear the contractors out and get a sense of the differences, saving money and time!
Once the contractors put in their quotes, you need to review, select, and negotiate with the winning bidder.
Schedule the Contractor to start on the day you get the keys to the property.
Step 7: Rehab
Once you’ve settled the paperwork and made the payment, it’s time to start work!
Remember the first rule of business.
Every hour, every day, and every month that goes by, you’ll be paying interest and other costs of owning your property.
You need to keep in mind the following that you will be paying for while you spend precious time working with contractors and builders to rehab your property.
- Any other costs
All these translate to you losing money.
The sooner you start and complete the rehab, the faster you can put the property on the market and sell it to pay off your loan.
So, it would help if you were prudent and efficient.
Time management is critical in getting things done and underway.
If you have worked with contractors before, you will know how they sometimes mess with you.
Something that takes a week to complete is still in progress a month later.
If the delay continues, every other trade will slow down because of the initial uncertainty.
Flipping homes successfully are all about being efficient and keeping your eye on the clock.
Working within Budget
Another vital thing to take control of is the project pricing.
It would help if you worked with a reputable contractor to give you a comprehensive quotation so that there are no surprises mid-way through the rehab.
So, choose contractors well.
If you’ve never worked with a new contractor before, you may consider the call as many references and past clients as possible.
Step 8: Sell it! Exit Strategy
The final step of flipping homes is may seem to be the most straightforward – selling it!
When selling your Flip House, use a good Realtor.
You can’t save money on this part and think that you could market the property yourself.
When selling your Flip House, we always use a good Realtor.
Having a real estate agent keeps you one step ahead.
You need to hire an expert Realtor who knows the market.
Making a big bang for your bucks merely means knowing your numbers.
Ensure you know and understand real estate fundamentals BEFORE you decide to buy your first investment property to flip.
Remember you are the one responsible for the pricing as your profits depend on it.
There are many part-timers, freelancers, and generalists who are experts in your specific market.
Getting an expert Realtor who knows the market to handle your property will save you money in the long run.
First, you get the Realtor’s opinion on the after-repair value (ARV) before even putting a contract on the property.
You can capitalize on your Realtor’s expertise for pricing.
Now that you have the strategies to help you get started, you need to decide if you can invest the time and money to put flipping homes into practice.
How to Flip a House for the First Time?
Your first deal will be the most exciting and can also be the most stressful.
Lean in on my expertise and learn from your lender, contractors, and home inspector to your Realtor.
Final Thoughts on How to Start Your House Flipping Business Plan
When in doubt, my final thought on flipping houses is getting a second or even a third opinion.
If you have any questions, do get in touch with me and learn from my mistakes, so you don’t have to make them yourself.
I have done this on my own for over 16 years.
Noble Sky has done this professionally since 2014.
We have the knowledge and the expertise to guide you with deep-level research and preparation.
But it would help if you made that first decision, which is to take action.
Only by acting will you create successful results and earn you profit.
We love Flipping homes as a community of property investors.
Talk to us about joining our professional network to get the help you need for the best deal possible.
How The Pandemic Has Affected The U.S. Home Flipping Market—And Three Predictions For The Future – Forbes Article