House Flipping 101: A Guide for New Investors

Real estate is one of the most potentially profitable markets out there, because there’s a finite amount of it available. The good news is that new investors can start today and work toward seeing increasing returns from their efforts.

But it’s not all sunshine and roses. When considering fixer upper properties, there are certain pitfalls to avoid and steps to take to protect your investment. We’ve created this guide to help you get started flipping houses for fun and profit. Let’s get started!

Learn from Those Who’ve Been Where You Are

One of the best ways to learn any skill, be it flipping houses or anything else, is to walk in the footsteps of those who have done it before. Fortunately, there’s no shortage of books, videos and guides that show you how to fix and flip real estate. You may even find it worthwhile to work with a mentor and develop your own strategy that matches your investing goals.

Research Your Local Markets

Knowing the ebb and flow of your local market is crucial to your success. Take the time to drive around neighborhoods to scout out potential fix and flip homes. Keep an eye on local real estate news and listings (both online and offline) to see which areas are up-and-coming and which are experiencing demographics shifts. Staying up-to-date on what’s happening in your local real estate market means you can be the first to make an offer.

Accurately Estimate the Cost of Repairs

This is perhaps the most important lesson for beginning house flippers to learn. Being able to accurately estimate the cost of repairs is vital to determining how much the home will flip for. Do a thorough inspection and be realistic when creating your fixer-upper budget. Will you be making the repairs yourself or hiring a contractor?  What will you do if unexpected repair costs should arise?

You want to be sure you have enough time and money to get the job done, so pad your rehab budget by around 20% or so. There’s some math involved, but the most important equation to remember when it comes to flipping houses is:

Your Purchase Price + Repairs – Selling Price After Repairs = Your Profit!

As you can see, the cost of repairs is going to be the most important part of the equation.

Make an Offer (They Can’t Refuse)

Once you’ve found the right house and have figured out your repair costs, it’s time to make an offer. Think about the highest amount you’re able to pay and how you’ll secure financing. Banks in your area may be apprehensive about lending money to purchase homes in need of major repair, so you can always apply for a hard money loan before you start negotiating with the seller.

Don’t be surprised if there are other investors interested in the property, particularly if the house is in a high-demand neighborhood.

Invest Some Elbow Grease!

If your offer stands head and shoulders above the rest, congratulations! Now it’s time to start working on the repairs. Whether you’re investing your own time and elbow grease on making the fixes or you’re hiring a contractor, you want to be sure you have the correct permits in place, as well as an accurate timeline and budget so that everything is on the right track.

Fixed It? Now Flip It!

Once everything is fixed, it’s time to do what you came for and flip it. Use the MLS listing service and a knowledgeable real estate agent – both of these can help you find an eager, ready-to-act buyer quickly. Real estate agents have considerable knowledge about local markets and trends, and they can work to show the house and close the deal on your behalf.

Rinse and Repeat

That’s it! Now that you’ve fixed and flipped your first home, chances are you’re already out scouting for your next big win. Many investors fix and flip multiple homes to build up wealth and increase their returns over time.

Of course, investing in homes in need of repair takes time and has its own risks and rewards. Know what you’re getting into before you jump, and knowing the challenges that lay ahead can make the difference in how much money ultimately goes into your pocket.

And if you’ve done plenty of reading and are ready to start buying, it’s worth having a local Los Angeles hard money lender on your side to help. The fixer-upper market is becoming more and more lucrative every day. Don’t be left behind! Call us right now at (818) 584-2424 for more information.