House Flipping: Where to Starton June 27, 2014 8:10 pm under Real Estate Investment Tips
How to Get Started Flipping Houses
Here at Rehab Financial, we frequently get calls from people who want to get into the rehab and house flipping business but don’t know where to start. While we are happy to speak with them and give them some guidance, they need to take matters into their own hands and get educated on how to start flipping houses. Below is a summary of what we usually tell them.
When we say educated, we do not mean enrolling in courses that will cost thousands of dollars, or any other kinds of programs that are typically a waste of time. We frequently come across people who invest their entire life savings into classes, mentoring programs, bus trips, etc. In Rehab Financial’s opinion, these expensive programs are overkill, and in the end, a waste of money. In fact, they may use up so much of your cash, that it makes it impossible for you to get a loan to become a house flipper.
When we say get yourself educated, we mean join local non-profit investment groups. Go to meetings, listen to their speakers, read their newsletters, be proactive on their message boards, and talk to people at meetings and exhibitions.
Another piece of advice we give house flipping beginners is to start looking at properties to buy long before you are ready to take the plunge. If you have a contractor who is willing to invest some time with you, take him or her along so they can point out things that need repair or potential issues that you might not recognize on your own. Start learning what certain repairs cost, if the work will require permits, and what work will require a contractor. Before being ready to buy a property, you should know what an HVAC unit costs, how much painting a room costs, what the costs for redoing an average kitchen and bathroom are, etc.
Once you feel educated, make a serious attempt at figuring out how you will pay for your project. Will you need financing? Are you eligible? Call a few lenders to see what their requirements are and if you would qualify. Find out their costs and fees.
From there, devise a budget for a hypothetical rehab or flipping project. How much down payment will you need? What will be your closing costs? What is your monthly payment? How much will carrying costs be? (carrying costs are your monthly payment, taxes, insurance and utilities). Then add 20% to the total cost of the project, as things can, and will, go wrong.
Can you afford all these? If not, redo your analysis using a less expensive hypothetical property. Continue to do this until you reach an amount that you are comfortable paying for the property, rehab and other costs. This figure will be your “drop dead” amount.
When you finally are comfortable moving forward to purchase a property, do not lose sight of your “drop dead” amount. You need to make sure that you can handle the economics of the property through the end. You are courting disaster if you spend more than you can afford in the hopes that some unknown thing will happen in the future to fund the project to completion. Don’t bet with money you do not have!
By laying the groundwork early in the process, you will protect yourself in the end. Being educated is extremely valuable, and you cannot take shortcuts getting to where you need to be. Invest the time to learn, it will serve you will in the end.
Interested in learning more? Read our Flipping Houses 101 guide to learn the ins and outs of the house flipping process! Specifically, the “How to Write a House Flipping Business Plan” is a great place to start.