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How To Flip a House: Your Step-By-Step Guide

·8 min read
sturti / Getty Images/iStockphoto
sturti / Getty Images/iStockphoto

TV has a way of making things look exciting and easy to accomplish. This is probably seen most often when it comes to house flipping. The house flippers go in and turn the place into a dream in what seems no time at all.

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Unfortunately, the reality of flipping houses isn’t quite as charming. It can be exciting and fulfilling, but it takes more time and work than you see in an hour-long TV show.

If your urge to flip houses has been sparked and you’re ready to commit to the process, you can have a fulfilling career. However, you shouldn’t dive into investing in and flipping real estate without adequate information.

To prepare for your first flip, you’ll need to review each step of the process. Learn how to get started flipping houses and start investing in real estate.

How To Flip a House

House flipping is simply buying a property to resell quickly for a profit. It’s a great way to make an income and to grow your investment portfolio.

Before you invest in real estate, learn what’s involved in the process. Here are the steps you’ll need to follow to flip a house:

Flipping a House Steps

©GOBankingRates / GOBankingRates
©GOBankingRates / GOBankingRates

Pros and Cons

Flipping houses can require a significant commitment of time and money. Before making your first flip, weigh the pros and cons of house flipping to determine if this is the right investment strategy for you.

Pros of House Flipping

As an investment strategy, house flipping can provide useful benefits. Here are a few of the major advantages to flipping homes:

  • They’re an opportunity to make a large profit in a short amount of time

  • You can improve your problem-solving skills

  • Satisfaction from restoring a home for a new family to enjoy

Get Started Now: 10 Home Renovations To Make Before You Retire

Cons of House Flipping

House flipping also features some negative aspects. Understand the risks before you commit. Some to think about include:

  • The house might not sell as quickly as you expect

  • Possible unexpected problems, such as faulty wiring or plumbing issues

  • Stressful process, including dealing with contractors and real estate agents

How Much To Flip a House for

Each home will have a different set of renovation costs. Your general contractor can do a walk-through of the home and create a budget repair sheet that will give you a better idea of how much renovations will cost.

It’s also important to let the contractor know your timeline and what you want to focus on as a first priority: drafting bathroom design ideas, installing kitchen upgrades, re-tiling the floors, and so on.

Should You Buy?

You want to make sure you will actually make a profit before purchasing a property. The following steps can give you a good idea if a purchase is worth it or not.

What To Consider Before Buying

Keep In Mind

The steps listed here are specifically for determining whether flipping a specific property has good potential for profit. Remember, flipping a house means selling it quickly. If you plan to use the home for ongoing rental income, the same principles will not apply.

Financing for Flipping Houses

It’s usually best to save up the cash necessary to purchase your investment property, since it prevents any additional interest. However, paying cash isn’t always possible. Fortunately, there are some financing options available.

1. HELOC

If you own any equity in your home, you can use it as collateral to get a HELOC, or home equity line of credit. With this option, you will have a second loan: your original mortgage and your HELOC. You can repay the HELOC once you sell your flipped house.

2. Cash-out Refinance

A cash-out refinance is another way to use the equity in your home. The difference is that you are basically refinancing your entire mortgage.

The amount you still owe on your home goes to the mortgage, and you get what’s leftover. You will then pay the one mortgage loan instead of having two separate loans.

3. Hard Money Loans

This is a short-term loan separate from anything relating to your mortgage. The repayment terms are typically from six months to a year, and they can have high interest rates.

It can be a solution if you’re sure your flipped house will sell almost immediately. However, if you need the loan for several months, you could end up paying out a large amount just in interest.

Flipping a House FAQ

Here are the answers to some of the most frequently asked questions about flipping a house.

  • What's the ideal credit score for flipping a house?

    • Your credit score isn't as important if you plan on purchasing the investment property with cash. However, all lenders use credit scores to determine their potential risk in approving loans. Buyers have the best chance of approval when their credit score falls into the excellent range, which is between 760 and 850. Depending on the lender, it's possible to qualify with a score of 650 and up. Any score below 650 will make it difficult to obtain a loan.

  • How do I determine property values?

    • In addition to using your appraisal to determine the property value of the home you're flipping, you can use a few online sources. Sites like Zillow and Trulia are easy to use and provide useful information for first-time home flippers. Taking the time to compare the property value with other similar homes in the area will help you arrive at the best price to list the home. Overpricing the property can lead to a lack of offers, and under-pricing can significantly cut into your profits, so determining the right property value is key.

  • How long does it take to flip a house?

    • The amount of time it takes to flip a home depends on how much work the property requires. You should try to stick with houses that can be rehabbed and sold within two months to minimize tax and interest payments that would eat into your profits.

  • Why can't I get a conventional mortgage loan?

    • Traditional lenders aren't really happy about financing the process of flipping houses. They like to provide long-term mortgages that you pay over years so that they gain their full interest. The goal of flipping houses is to sell them quickly, which would work against a conventional lender's goals. Mortgage loans also typically don't get approved for homes in substandard conditions. Since many flipped homes need a lot of work, they wouldn't pass an inspection to qualify for a traditional mortgage loan.

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Alicia Bodine contributed to the reporting for this article.

Last updated: July 6, 2021

This article originally appeared on GOBankingRates.com: How To Flip a House: Your Step-By-Step Guide