Property flipping or house flipping, as some people call it, can be a lucrative way to earn money in real estate — if it's done right. Since it requires a sizable investment of your own money, becoming a property flipper can also be a risk that doesn’t always reap the rewards. Many people get into real estate, via the house flipping route, to earn a part-time income or as a way to experiment with a real estate career while discovering which real estate career path is the best for their lifestyle. If you're interested in becoming a house flipper, these steps will help you go on the right track.
Get A Real Estate License
When beginning a flipping career, it's a good idea to be the most rather than the least prepared. You don't need your real estate license to become a house flipper, but it's a good idea to get your real estate license because it will open up more opportunities for you throughout the process. Studying for a real estate license test lays a great foundation for house flippers of all the details, vocabulary, and forms needed to buy and sell a home.
Most states have several disclosure forms required by law. The national exam gives flippers confidence that they've mastered the material. That material includes information on disclosure forms, zoning challenges, financing details, and Home Owners Association regs, all of which are critical information attached to buying and selling homes. While everyone thinks that real estate is easy, it's actually the opposite. Knowing what can go wrong — all the liability issues — can help reduce your risk.
Obtain Access To The MLS
When buying and selling a home, it’s all about the Multiple Listing Service (MLS), which is the place to go for accurate information on properties for sale and properties sold. Unlike some online listing sites, the MLS status data is “accurate and verifiable.” Other sites aren’t reliable 100% of the time, and you always have to go back to the MLS.
However, you have to be a real estate agent and a member of national, state, and local real estate associations to gain access to the MLS. If you’re not an agent, you’ll have to pay one — sometimes as much as $1,000 — to list your property on the service. If you flip several properties, those fees add up and eat into your profit.
Seek Support From Real Estate Brokers
Real estate brokers can provide invaluable advice and support to newbie house flippers. As a newbie, you say to a broker, "Help me. Lead me. Guide me." This is a great way to learn the business and get support. Also, brokerages come with a slew of agents who can bring buyers.
Exposure is key. Many brokers say, "Let’s try to sell it in the firm first.” That could mean allowing agents to bring clients during a “coming soon” period before the property officially is on the market. It also could mean that you'll have advance notice of properties coming to the market, which could be your next flip.
Buy A Property
This is probably one of the steps to house flipping that you're probably most familiar with after watching property flippers on reality T.V. If you already have your real estate license when you get to this stage, you'll have access to the MLS and be able to find deals on properties that you can fix. Here are some considerations when purchasing a property.
Will you get financing for this property or pay the total price upfront?
If you're taking out a mortgage on the home, what monthly payments can you reasonably afford after you factor in the cash costs you'll need to renovate?
Will you purchase this property with the help of real estate investors or do it on your own?
What are the property value trends in the areas you're shopping for?
Make Renovations On The Property
Next up, time to renovate! When you're renovating, it's important to stay on budget so you'll end up making money on your house when you sell it. Here are some tips to help you keep the costs down in this stage.
Create a budget.
Use a cashback credit card or a credit card with great rewards points on your business purchases.
Reuse materials, or buy used, salvaged materials from other house flippers.
Stick to classic designs that will resell well.
Take your time when accepting bids from contractors to find the right one.
Be specific with your initial budget so you'll have an accurate estimate from the start.
Decide where you'll splurge and where you'll stick with the minimum.
Sell To Save Money Or Earn Commissions
You'll always have to pay the agent who shows up with a buyer a 2% to 3% commission. But a real estate license for property flippers means you can represent your own property, so you can either save the money or pay yourself a listing commission. Some brokers, not all, will let their agents pay themselves or eliminate the listing commission on sales of agent-owner properties.
In May, the median price of a home was $252,800. This is according to the National Association of Realtors. So if you act as your own listing agent, you'll save $5,056 to $7,584, which could be the difference between making a profit, breaking even, or losing money on a flip.
Do you need a real estate license to flip houses? You don't necessarily need a real estate license to flip houses, but it could be useful. Not only could it help you get the best deals on your own personal house flipping process, but it could help you earn money while you're working on your own home. Many months go by between identifying and buying a property, fixing it up, and selling it for a profit (hopefully).
House flippers who've obtained a real estate license can earn money buying and selling other people's properties while they're working on their own. Real estate agents often work nontraditional hours - nights and weekends - when clients are available. Thus, they can still manage a construction site that typically starts at 7 a.m. and knocks off at 3 p.m. and then earn commissions on real estate deals during the off-hours.