House Flipping 101: Tips for the Best Return

by Rob Phillips, CPA

House flipping is the art of buying residential property at a below market price, rehabbing it and selling it for a profit. It’s a real estate investment strategy that’s captured America’s imagination — get a good deal on a house, put in some elbow grease and cash out.

Millions tune in to catch an episode of Flipping Out or Flipping Boston on TV. While these shows are great introductions to the basics of flipping houses, there’s far more to the craft than can be captured in a 30 minute episode.

So…what’s the real deal? Can investors really profit from house flipping? Yes…if they’re savvy.

The House Flipping Process

House flipping can be summarized by the classic business motto: buy low and sell high. Investors buy real estate at below-market prices, rehab the property and then flip and sell it at current market rates. When it comes to flipping, time is of the essence. Investors invoking the flipping strategy live by the gospel of ‘get in and get out.’

The basic formula for a flip is simple. House flippers scout out a good deal, secure financing or use cash to purchase and rehab the property and then turn around and sell the house for a profit. Depending on their particular method, a house flipper may need to engage third parties for some of the required work including contractors for the rehab work and real estate brokers for the purchase and sale of the property.

The House Flipping Timeline

A typical flip, for an experienced investor, takes about three to seven months to complete but some projects can take up to a year. Flips have lots of variables that contribute to how long a deal can take to finish. For example, contractors and closing delays can stretch out a flip for months longer than initially planned.

Investors with experience working within the market where the property is located are able to use their local knowledge to successfully complete their flip within the projected timeline. Delays will happen; however, experienced investors can fend off costly scenarios by anticipating potential problems and accommodating for them in their timeline strategies.

The Earnings From House Flipping

For flippers who’ve mastered the art form, a single flip can bring in upwards of a $100,000 or more. Savvy house flippers usually employ one of two strategies: rehabbing property or buying financially troubled properties for prices far below market value.

Flippers who rehab properties need to have some knowledge of everything from construction to zoning laws and solid connections with contractors and brokers. When scouting out properties, flippers who rehab usually look for a home that is structurally sound but needs a big repair or cosmetic updating that the seller doesn’t want to, or can’t, deal with. They buy the property at a low price, make the necessary repairs and earn large profits at the resale.

Flippers who deal with properties in financial distress look for ones that are in pre-foreclosure, foreclosure or that can be short-sold. Because financially distressed properties often come with costly annoyances such as tax liens and back mortgage payments that the new buyer must square up, flippers buying these properties must educate themselves as much as possible about the financial problems attached to the title.

Once the flipper assumes the title, they re-list the property priced at market value. For the flipper who can skillfully navigate the flip, rehab and sale process, large profits can be earned in proportion to out-of-pocket expenditures. It all comes down to experience. The more flips an investor has completed in a specific market, the more equipped that investor will be to successfully flip the next house for a profit.

The Hot House Flipping Markets of 2014

Location is everything, or so the saying goes. The local market in which investors choose to work greatly contributes to a deal’s success or failure. In general, real estate markets that command the highest prices bring flippers the biggest profits but these markets don’t always present the best opportunities. Where are the top markets for flipping for 2014? We looked at recent stats released by both Local Market Monitor and RealtyTrac to bring you our top picks for the country’s most flippable markets.

  1. Sacramento, California
  2. Orlando, Florida
  3. Atlanta, Georgia
  4. Ocean City, New Jersey
  5. Miami, Florida
  6. Dallas County
  7. Jacksonville, Florida
  8. New York, New York (and Metro Area)
  9. Naples, Florida
  10. Los Angeles and Santa Ana, CA

As with all arts, flipping requires skill and inspiration. Successful investors must be willing to invest time, money and patience into a flip; they should also be educated about the local market or work with those who are. For those who master the craft flipping can be a powerful way to earn healthy returns in a relatively short period of time.

Today, investors who are interested in profiting from flips have the option of working with an online investment platform that connects them with projects and experienced sponsors in some of the hottest markets across the country. That way, investors can take advantage of house flipping without doing any of the work that goes into purchasing, rehabbing and selling the house for a profit.

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