House Flipping for Fun and Profit

If someone tells you that you can make fast cash by purchasing an old home, doing some repainting and a few repairs, they’ve probably been watching too much reality TV.

While house flipping shows might make it seem that way, it’s time-consuming, stressful, and expensive. But if you do it right, meaning, the right market, the right crew, and the right house, it is possible to make good money. According to ATTOM Data Solutions, in the first quarter of 2020 the average gross profit for those who flipped a house was $62,300.

By following these guidelines, you too may be able to start house flipping for fun and for profit.

The Right Market

There’s a wide disparity in the profits home flippers earn based on the region of the country the property is located in. WalletHub reports that the top five cities for house-flipping when it comes to earning the most are Sioux Falls, South Dakota; Missoula, Montana; Peoria, Arizona; Nampa, Idaho; and Tampa, Florida. The worst are Newark, New Jersey; Oakland, California; Yonkers, New York; and San Francisco, California.

That means you’ll want to do your research before choosing which city to buy in. 

Estimating Rehab Costs as Accurately as Possible

Many would-be house flippers underestimate the costs and come out on the losing end of the deal.

First, there is the cost of the rehabilitation which is much more complicated than you might think. You’ll have to have a good understanding of construction codes in the area, know what construction materials you’ll need and the prices for everything along with any labor expenses. Keep in mind that every dollar you pay for workers is coming out of your profit, so ideally, you should do most of the work yourself. People typically make money flipping by putting in sweat equity. 

Even the most experienced estimators can fail but they’ll have a much better chance of coming up with an accurate total than someone who simply reads a few articles or watches a YouTube video about it. If you aren’t one yourself, hiring a numbers wizard is likely to pay off.

Realtor Commissions and Closing Costs

On top of the rehab costs, there are also costs related to the sale. You’ll need a real estate agent to help – if you try to do it on your own, odds are, if the home sells, it will be at a much lower price so it’s worth the commission to pay a pro.

Still, that’s something that must be calculated when determining potential profits. Don’t forget about the closing costs either which can be 8 to 10 percent of the home’s sale price – a seller closing costs calculator can help you come up with an accurate figure. 

Make Decisions Based on Maximizing Profits

When buying a house to flip, you need to look at it as a way to make money, not in terms of features that you personally would love to have such as a man cave in the basement or a hot tub. Focus on what will make you the most amount of money for the lowest cost and the least effort.

Time

Another big mistake many first-time flippers make is not allowing enough time. If your finances require the turnaround to be fast, you’re unlikely to do a good job of flipping.

When it comes to rehab and any type of construction project, it’s almost always going to take longer than you think. Be sure you can financially handle owning the house long enough to get the necessary work completed.