house flipping business

Start a House Flipping Business in Just 5 Steps

Advertisements on house flipping make it look very easy and rosy. Television shows feature successful Investors who make the process appear, quick, fun, and profitable. As an investor, you are there thinking about how you will make huge profits very fast and want to dive into the business. House flipping is not a get-rich-quick scheme. It has the potential of fetching you good returns but you must work hard for them.

House flipping is a suitable chance if you are familiar with the industry. You can be a contractor or a real estate agent. Chances are you might have flipped property in the cause of your career to gain extra money. You can take up the challenge and make it a full-time job.

Just like any other business, house flipping requires research, knowledge, planning, and financing. In this business, time is key. Therefore, patience and good judgment are very essential. You must be prepared to work smart for your business to succeed.

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What is house flipping?

House flipping is the process of purchasing desirably low priced properties. These include distressed properties that need some fixing up, foreclosed properties, or even an old home that needs to be upgraded with newer modern features.

After purchasing the home, the investor then renovates it and resells it at a higher price within a short stretch of time.

However, it does not always work as planned. Sometimes it is a risk that does not have good returns. The good news is that you have a probability of making huge profits.

The following steps if followed keenly will make your house flipping successful:

#1: Create a business plan

It is important for any business to have a plan, so should a flipping business. A plan acts as a guideline. In a nutshell, it defines the purpose of your business, your goals, and projected returns.

Moreover, a business plan will put you in a better position to get funding. With a business plan lenders are confident that you know what you are doing and you have a high success rate.

A comprehensive business plan should include:

Goal summary

This will define the purpose of the business with specific goals and the vision of the business. It will also explain the type of properties you will be dealing with, who you will work with, and a mention of the expected return on investment.

Lead generation plan

This outlines the strategies you will implement to locate properties you will be trading with.

Market analysis

This will include the recent real estate trends, definition of your competition in order to determine your demand and your area of coverage.

Financing sources

The plan should include how you will finance your business. Whether it’s through cash savings or from other sources.

Marketing and sales plan

This section will explain how you plan to market your properties in order to achieve the expected return on investment. It will define whether you will use real estate agents or you will do it by yourself.

#2: Set up your business operations

This includes deciding on your legal structure, registering your business, opening necessary bank accounts, and obtaining legal permits and licenses for your business.

This step gives you the permission to legally operate your business, dictate how you pay taxes, and build your reputation with lenders and other investors.

To set up your business operations you will need to:

Chose an entity

You need to establish which legal structure to set up. You can operate as a sole proprietor, a partnership, a corporation, or a limited liability company.

It is advisable to operate as a Limited Liability Company because it offers asset protection and protects you from any personal liability.

Register your business

In this step, you register your business with the IRS and obtain an employee identification number (EIN), which recognizes it as a business entity.

Next, you should inquire from your local municipality about other permits and licenses you may need during your operations and acquire them. The licenses and permits depend on the type of work you will be involved in.

Open a business bank account

Having a business bank account will help you to segregate business finances from personal finances, which is very important during taxation.

Set up market Operations

This step will improve the image of your business because you will be known to be professionals. You can start by making business cards and generating a business email.

It is also good to create a website that displays what you are doing. You can provide more information on your website about the kind of houses you are interested in and any other projects you have done before.

#3: Hire professionals to form a team

Just like any business, you will need a team in your house flipping business. This team should consist of professionals at different levels of your business operations. You don’t have to hire all of them at once; you start from the most needed one and add the rest as the need arises. Here are a few professionals you might need to hire:

General contractor

A contractor is crucial especially when you want to renovate distressed properties. Ensure you get one who is licensed to work in the city you are operating in.

Apart from making a house fit to be flipped, a good contractor will advise you on permits, licenses, and other local requirements. When recruiting a contractor ask for their portfolio and select one that is comfortable with your budget.

Real estate agent

They have experience and knowledge in the industry. They will provide you with accurate firsthand information that you might not get on real estate websites. Additionally, they are amazing sources of market data in the locality you are flipping in.

Real estate attorney

There are legal aspects in flipping houses if missed can have a negative impact on the deal or even ruin your image as a house flipper. A real estate attorney will assist you in coming up with contracts and ensuring that you comply with all legal requirements.

With time you will need to hire other professionals such as a landscaper, an architect, and an accountant. For all the professionals when hiring, referrals from other investors make the best team.

#4: Source and secure financing

It’s normal for an investor to start a business without enough funds. This is where lenders and other investors come in. As an investor in the house flipping business, you must be very cautious about the funding option you choose.

Before settling in any funding option you should consider your credit history as a borrower, terms and conditions, and interest rates relating to the financing option. This will help you to get a lender you are comfortable with.

After getting finances it is ethical to honor terms of agreement and pay as required. This will not only increase your credit score but also help to establish healthy long-term relationships with lenders and investors.

The most common ways to finance your flipping business include:

Hard money loans

It’s a good option if you have a low credit score because they base their lending on the deal and not on your personal or business credit score. They are easily approved and provide faster funding. However, they attract very high-interest rates.

Business line of credit

These are lenders who examine the performance of your business to give you funds. This means you have to be operational for a few months before requesting finances.  They also don’t consider your credit score.

Home equity lines of credit (HELOC)

These are equity lines present in your current home. If you have a good credit score this is one of the options you can use. It’s advantageous because it has lower interest rates with favorable terms.

Investment group loans

These are clubs where you find investors ready to pump some funds into your house flipping business. It’s essential to join these groups to build and expand your network.

#5: Buy, renovate, market, and sell properties

At last, you are now ready to start flipping houses. You have created a business plan, registered your business, hired a team of professionals, and sourced for financing, you can now search for desirably priced houses to revamp and resell.

Now that business is kicking off you will need your team of professionals in different stages of the business operation.

The real estate agent will help you to get wholesale deals for houses that need to be refurbished.

Your attorney will come in and assist you with the paperwork and take you through the process of buying a house.

Once you have bought the house, the general contractor will determine and do the necessary renovations. They should be in line with your budget and be done within a specific timeline.

The house is ready and should be on the market. Your real estate agent once again has the responsibility of marketing your rehabilitated house by listing it.

After you get an interested buyer, the attorney should ensure the transaction is legally done and well documented. The final selling price should be higher than the costs incurred up to the last stage. The difference is the profit you get to go home with.

Bottom line

Clearly, house flipping is not something you can just wake up and start. It is advisable to follow all the steps up to the latter for better and great returns. Once you are into the business it gets better and less complicated.

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