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What You Need to Know to Start a House-Flipping Business

what you need to know to start a house flipping

Flipping a house is an exciting opportunity and a profitable one that.  If you are looking for a short-term investment, you can be a house flipper. House flipping is the process of buying foreclosed, distraught buildings or on the other hand desirably high valued properties, and selling them at a higher price within a short period, say 3 to 4 months.

So, if you are starting out your investment journey and looking for quick profits, you can consider house-flipping business for a starter. Getting house-flipping business started involves high-end research and several steps. This post will help you develop a business plan and other steps involved in establishing this business.

Step 1: Establishing a Plan

Your house-flipping business plan will help you determine how many projects you can take and how many are needed to complete your investment goals. It helps you develop your profit expectations and produce valid contracts on papers.

Several things go into a house-flipping business plan as it intends to generate profit. It is important to know what to include in the plan to make it easier for investors and lenders to understand.

You will have to take in six things for sure

1. Summary

Your house-flipping plan goal summary should include the following elements:

  • What type of property you are looking for, such as 1BHK, 2BHK and so on
  • What are your specific goals pertaining to house-flipping
  • How do you want to achieve your goals
  • Location where you want to purchase and flip
  • Whether you want to hire a contractor to do the work?
  • What would be the project dead-line?
  • How many projects can you take or want in one year?
  • What is your expected return on investment (aim for 20% and more)

2. Market Analysis

Your market analysis should include the recent statuses or comparable not older than six months, real estate price trends in your state or city, the demographic data from the census bureau, all the upcoming development projects in your chosen area and the number of days a property is in the market before it is sold.

3. Lead Generation

Lead generation in real estate means how are you planning to locate the properties that you can purchase, fix and make a profitable sale. You can use free resources or have realtors search for leads. Once your company is up and running, you can come up with the more versatile lead generation plan, such as sending out flyers and real estate postcards, buying leads and other marketing campaigns.

4. Finances

You have to decide whether you want to invest from your savings or borrow from financial sources. Though finance sources give you the power to buy more properties and renovate more buildings at once, your carrying costs and timeline increases.

Lenders take more time to close a property and that can increase your trade-off cost. However, loans free up your savings for other crucial projects and personal obligations.

5. Marketing and Sales

Marketing, promotion and sales plan is vital for you to get an idea of how you are going to market your refurbished properties. You can hire a realtor for the purpose. Potential lenders do go through your marketing strategies twice before lending money, so make sure it is perfect and concerns in boosting ROI.

6. Your Business and Personal Biodata

Both are essential in your house-flipping plan to give your goals a concrete foundation and provide more insights to your qualifications. Mention welfare-community involvements, if any in your business biodata and ensure each business element gets its own paragraph. Write about your education, experience, and qualification in your personal bio data.

Step 2: Connect and Hire Right Flipping Professionals

The right house flipping professional will make your journey as a house-flipper a lot easier by providing valuable and timely assistance. These professionals include attorneys, accountants, realtors, and contractors. They ensure that you don’t make any mistakes in flipping and make sure you and your business conform to all legal guidelines.

You can hire professionals per project wise instead of payroll to save your expenses. Don’t hire all of them at once as not all are required right away. You can hire a general contractor if you have already started a project. However, we recommend you to hire an attorney before commencing to help you understand the legal terms clearly.

Hire a Realtor only when the project requires for it, such as if you are looking for houses or interior-decorators and architects for re-designing. Here is a list of professionals you need to hire for your business:

  • An Attorney that specializes in real estate business and investment.
  • An Accountant to help set up your finances, such as filing taxes, tracking your expenses, items that are to be written off and so on.
  • A licensed General Contractor who can oversee your projects and job site and makes your business process free of error and cost-effective.
  • An experienced and well-adaptive Realtor, who can give you accurate market statistics and industry knowledge.
  • Project-wise Landscaper who can give your property a likable appearance to appeal buyers.
  • Project-wise Architect for changing the structure and adding up more rooms and elegance to your property.
  • A well-skilled Handyman for doing additional works such as plumbing, carpentering, patching-up holes etc.

You can also make do with an assistant once your business has flourished and you are running the show successfully.

Step 3: Set-Up Your Business Operations

First, you need (with the help of your accountant) to decide which type of business you want to establish. You can form an S Corporation, or a DBA, an LLC or choose to be a sole proprietor. Forming a business limits your liability and improves your taxation. This also helps you to protect your personal assets from your business liabilities.

Steps Involved in Setting-Up Your House-Flipping Business

1. Register Your Business: Once you know what kind of business you are planning to set up, register your business with IRS and get your Employee Identification Certificate (EIN). Make sure you have the necessary business licenses and permits handy.

2. Open Bank Account: Open your business bank account to keep your personal and business transactions separate. It helps you to eliminate auditing and taxes complications.

3. Credit Card Application: You can use it to purchase building materials, buy business travel tickets and other stuff related to your business.

4. Start Your Marketing Operations: Set-up your marketing tools. The basic would be a business card. It is cheap and handy. You can slowly develop your own website, business email address and blog site. Create your web portfolio covering your last completed projects and so on. Marketing makes your business legal and reachable.

Step 4: Identify and Approach Financing Sources for Your Business

You can finance your house-flipping business in three ways, apart from savings. They include Hard Money Loans, Rehab Loans and Investment Group Loans. The former two are safer and easier options and we recommend you to choose them over Group Loans.

1. Hard Money Loans: You can apply for hard money loans online. They offer faster approval times and faster funding times than traditional mortgages. They ask for lenient borrower qualifications. However, their term interest is higher and loan terms are shorter.

2. Rehab Loans: They are basically Equity Lines of Credit. These loans can be used to fix up another project. They offer 15 – 30 year fixed and adjustable mortgages with cost-effective rates.

3. Investment Group Loans: You have to first join an investment group and meet investors who are willing to put cash in your deals. These groups can be found in your local Google search with the keywords ‘meet-up group’ or ‘real estate investors’. However, most investors invest only in flippers who have experience in construction or real estate. So, if you are a newbie, your chance here diminishes.

Step 5: Look for the Right Properties for Fix and Flip

Once you have arranged everything required for your house-flipping business, from a business plan and a team of professionals to the right financing source, it’s time for you to identify the right properties for fixing and flipping.

You have to consider your budget and timeline for this. Your property will be the final determinant to meet your expected ROI. Make sure you spend enough time finding the right one. Here is a list of factors you need to consider when searching for the right property:

  • Choose a neighborhood that is convenient and good
  • Choose a well-kept and friendly neighborhood
  • Look for great surrounding amenities, such as parks, gymnasium, ATM, bank, schools, restaurants and metro station to attract buyers
  • Compare market statistics of the locality
  • Include property size, outdoor space, and aesthetics of the property

Step 6: Refurbish, Market and Sell

This would be your final step. Once you have got hold of your desired property, it’s time to make some profit. Generally, it takes 15 – 30 days to close a deal using cash or hard money loan and 30 -120 days for rehab loans. Start marketing the property as soon as the rehab is near completion.  Depending on your promotional activities, market size, property location, look and appeal, and property price, it may sell in a few days or may take months.

Now that you are clear about all the steps, it’s time for you to go on and about. Yes, you will make mistakes, but they will become part of the learning process. If you have any queries, feel free to ask in comments and we will get back to you.