What Does Flipping Houses Mean? We Explain and Show You How to Start

Buy to let is a very popular property investment strategy, but it’s an approach that takes a long time to see decent returns.  If you want to see a return on your investment sooner, then house flipping could be for you, but what does flipping houses mean?

Flipping houses is the process of buying a property, doing it up, and then selling it on for a profit. This can be done with either residential or commercial properties, but usually refers to residential homes.

The whole process can take anything from a few months to a year or more depending on the size and condition of the property when you bought it, as well as how much money and time you’re willing to invest in renovating it and what the local demand for property is.

There are two types of house flipping: short-term and long-term.

Short-term flips are when you buy a property with the intention of selling it again quickly, hopefully above the original purchase price. The time frame between the purchase and sale ranges from one to twelve months.

Long-term flips are when you buy a property with the potential for value increase.  You hold onto the property for a longer period of time – usually more than 12 months – in order to see these gains.

In some respects, buy-to-let is an extreme long term flip as you always hope to eventually sell your rental to earn a tidy profit.

In either case, you will be able to add some value via renovation work, even if it’s just the basics of sorting out the garden and freshening up the wallpaper.

What are the benefits of flipping houses?

There are many benefits to flipping houses. Perhaps the most obvious benefit is that it can create financial freedom. When you flip a house, you are essentially your own boss and have more control over your income and expenses. This can be a great way to achieve greater financial stability and independence.

Flipping houses also offers the opportunity to be creative and have some fun with your work. Unlike traditional office work, flipping houses allows you to be more flexible with your time, working when and where you want to. You also have the ability to take on as many or as few flips as you want each year, giving you more or less income depending on your preferences.

Another big benefit of flipping houses is that it creates a strong stream of revenue. Once you have established yourself in this business, there will likely always be an abundance of opportunities for flipping houses–meaning a consistent flow of income for years to come.

Like any business venture, there are risks associated with flipping houses. However, if done correctly, these risks can be minimised while still reaping all the rewards mentioned above!

What are the risks of flipping houses?

There are a few risks that come with flipping houses. There are five key mistakes that are easy to make:

  1. Overpaying for a property;
  2. Underestimating how long it will take to renovate;
  3. Failing to get accurate estimates for labour and materials;
  4. Not having enough cash on hand to cover unexpected costs;
  5. Not knowing when to walk away from a bad deal.

As with any property venture, it can be expensive to complete a flip, and it may take a while to recoup your investment.

Additionally, resale values of home improvement projects are typically higher than the original costs, but there are no guarantees.  Buy the wrong property at the wrong price in the wrong location and even with the most amazing renovation you could find yourself out of pocket, or worse, unable to resell it at all.

You also want to be careful about how much you borrow for your flip, as over-borrowing can lead to serious financial problems down the line.

Another risk is that you may not be able to do all the work yourself, and will need to hire contractors. This can add additional expense and time delays to your project, so it’s important to consider how much work you plan on doing and how much you’ll outsource to contractors.

Finally, it’s important to explore different financing options before investing in a flip house, and make sure you understand the terms of any loans you take out.

Flipping houses can be a great way to make money, but it’s important to be aware of the risks involved so you don’t end up losing money instead.

Why do people flip houses?

People flip houses for a variety of reasons. Almost all see it as an investment opportunity, while others enjoy the process of renovating and redesigning properties.

For those who enjoy the design challenge, each new property represents a blank canvas.  Using lessons learned from previous projects, the aim is to figure out how a new property be renovated but still give a decent profit margin.  

Property renovation, painting walls

Whatever the reason, flipping houses can be profitable and enjoyable if done correctly.

How do you start flipping houses?

There are generally three steps involved in flipping houses:

1) Buying: finding an appropriate property at a good price;
2) Doing up: carrying out any necessary renovations;
3) Selling: putting the property back on the market and hoping to make a profit.

Before you get excited about the thoughts of a huge profit and start scouting for a potential investment let’s remember there is a lot of money involved.

It’s important to know when a property represents a good deal for house flippers and a useful rule to employ is the 70% rule.

The 70% rule suggests investors should pay no more than 70% of a property’s after repair value (ARV) minus the repairs needed.  For example:

Property current value: £190,000

Estimated cost of renovation & repairs: £20,000

Property after repair value: £190,000 + £20,000 = £210,000

Ideal purchase price: (£210,000 x 0.70) = £147,000 – £20,000 = £127,000

If these figures were accurate you would see a return of £63,000, which is the difference between your sales price (£210,000) minus the purchase and renovation costs (£127,000 + £20,000).

Keep in mind this method is very much a guide and doesn’t guarantee the figures involved, but it’s useful because it forces you to consider how much you are willing to invest in doing up the home. 

If you’ve no experience in this area I highly recommend speaking to those in the industry to get an idea how much certain jobs will cost you.  

Whatever total budget you come up with, you need to be prepared to have more money in reserve as situations inevitably crop up that will push your budget to its limit.

How do you find properties to flip?

There are a few different ways to find properties to flip. The most common way is by working with estate agents.

These professionals have access to many properties and are generally who sellers turn to when looking to sell a property.

As such they’re very experienced in understanding what the buyer is looking for and helping to find the perfect opportunity for you.  It’s important to build up a good relationship with the agents in the area of interest and to be up front about what you’re looking for and the budget you have.  

Be clear you’re after something that needs work doing to it as these properties are very different to what other buyers are after.  Many shopping for a primary residence may want a ready to move in property rather than a fixer upper.

Some property investors work with wholesalers, people who purchase homes at a discount and then sell them to investors like you.

You should also consider attending property auctions, as long as you’re ready to move quickly, these can be an excellent source of properties rich in potential being sold at a very attractive rate. I have written an article about buying a property at auction.

As with any investment, don’t rush it, you need to be patient. Take your time, make sure you’ve everything in place to move quickly and when the right property comes along you can move quickly to purchase, renovate and resell.

Remember: not every property will meet your minimum requirements for cost or size; if this happens, keep looking!

How do you refurbish a house?

When it comes to flipping houses, repairing and refurbishing are a key step that can be make or break when it comes to making a potential profit. 

The aim is to fix up the home so that it can be sold at a higher price without spending a fortune on the work.

Here are five property renovation projects that will add immediate value to your project.

1. Paint the interior

Painting the interior a neutral colour is a quick and inexpensive way to immediately freshen up every room in the house and will make it far more attractive to potential buyers.

By using neutral colours you’ll give one set of buyers a ready to move in home and another set of buyers a blank canvas to start imagining how they’d make changes.

2. Refresh the kitchen

A tired, worn out, kitchen is immediately off-putting to buyers, it is something they’ll spot as needing to spend money on right away.

Doing a simple refresh, such as installing a new kitchen or replacing cupboard doors, can dramatically change the overall look of your kitchen.

Installing a stainless steel sink will give your kitchen a modern feel, while installing a black granite sink will give it a classic touch.

If the kitchen is in terrible condition get it replaced.  There are lots of relatively inexpensive options when it comes to new kitchens. The money is well spent and immediately adds value. For example kitchens at Ikea are very good value and they look great. They also offer an interest free option so you can take the payments out of the rent you receive.

3. Replace old windows

If you purchase a property with old wooden windows then fitting a modern replacement is a must.

Replacing old windows with newer ones not only enhances the look of your home, they’re also easier to clean, and they provide much better insulation, reducing the running cost. Especially if windows are surrounded by mold!

4. Change out the bathroom fixtures

As with the kitchen, changing out the fixtures in your bathroom can completely transform the look of your bathroom.

Replacing your bathtub with a walk-in shower, adding a pedestal sink, or replacing the toilet can all drastically alter the appearance of your bathroom.

5. Check the curb appeal

Curb appeal is everything. It’s what makes or breaks a property. A buyer who sees a beautiful front lawn will want to buy the house, but one who doesn’t will pass by quickly.

Make sure your front garden looks good. If it needs some attention, now is the time to act.

There are many ways to improve the curb appeal of your home. Here are just a few:

• Clean up the exterior of your home

• Cut back overgrown shrubs and weeds

• Trim trees and bushes

• Plant flowers

• Mow grass regularly

• Add a nice fence

These five suggestions are sure to add value to your home without breaking the bank.  As you can see there are many ways to tackle this, and the approach you take will largely depend on your budget and timeframe.

If you’re on a tight budget and have the skills, you may want to consider doing as much of the work as possible yourself.

Of course, for those who aren’t DIY-ers hiring contractors to do some or all of the work for you is also an option. Just make sure you get quotes from several contractors so that you can find one who offers good value for your money.

If you’re looking to maximise the sales price, and you have more time available, you may want to take a more comprehensive approach to your house. This could involve knocking down walls, adding new features, or even changing the layout of the property entirely.

Keep in mind that this type of renovation work will usually require more time and money than smaller-scale projects, but can add more value to the resale price.

How do you market a flipped house?

Now that you’ve completed your flip, and it’s ready for sale, how do you go about marketing it?  It’s much the same as a regular house sale. Here are some tips:

1. Have great photos taken of the property. Having a freshly renovated house in great condition will be your main selling point, so make sure the photos taken are high quality and show off the house in its best light.

2. Price it competitively. You don’t want to overprice the home, or you’ll lose potential buyers, but you also don’t want to underprice it and leave money on the table. Get a suggested price from 2 or 3 local estate agents who will value it based on the current condition rather than the original condition.

3. Hiring a top-rated estate agent. Your real estate agent is one of the most important factors when it comes to selling your home quickly and for the best price. As well as getting valuations from different agents, make sure to research your options about who to go with.  Check out reviews from previous customers, compare rates and terms of sale, and choose the one you feel is the best fit for your specific needs.

4. Stage your home for success.  Staging your home is a great way to help it look its best and generate more interest from buyers. Work with your real estate agent to come up with a plan for how to best stage your home to show off the work you’ve done to it.

5. Have realistic expectations.  It’s important to have realistic expectations when it comes to selling your home. Keep in mind that it may take a little bit of time to find the right buyer, but by following these tips, you can greatly increase your chances of a quick sale.

What common mistakes do people make when flipping houses?

There are a few common mistakes that people make when flipping houses. The first is not doing their homework. This means not understanding the market in which they are flipping, not understanding what they can afford, and not understanding the potential repairs that may need to be done.

Another mistake is overspending on the property they buy. People often want to do too much work on the home and leave it too expensive to sell. They also forget about things like staging, which can help them get a higher price for their home.

The last mistake is underpricing their house. When trying to flip a house for profit, it’s important to price it fairly so that it will sell quickly. If you price it too low, you may end up losing money on the deal in favour of a quick transaction.

How much cash do you need to start flipping houses?

Flipping houses can be a lucrative investment, but it does require some up-front cash. As with so many things in property, the amount of cash you need to get started will vary depending on the condition of the home and its location.

Things you’ll need money for:

  • Purchasing the property
  • Renovation (materials and labour)
  • Legal fees
  • Estate agent fees

Remember to make use of the 70% rule I explained above when considering an investment.  Keep in mind that this number is just an estimate; it may be more or less depending on market conditions and other factors.

It’s also important to remember that estimating the cost of repairs before starting any work is critical for ensuring you stay within your budget.

The more accurate your estimated numbers, the lower the financial risk in the long run.

What is a good return on flipping a house?

When it comes to flipping houses, there’s no one definitive answer to the question of what constitutes a good return on investment. Much depends on the particulars of each situation, for example the location in which the house is located, how long you hold onto it, and how much work needs to be done before it can be put back on the market.

Any profitable return is a good return!

Think about all the costs that go into such a project. This includes the purchase price of the home, renovation and repair expenses, holding costs, legal costs and agent costs.  If you cover all those and still come out with more money than you started with it’s a win.

One key point to consider is how long you plan on holding the property before selling.  Flippers should aim to sell their homes within seven months of purchasing. This is because the long-term capital gains tax can be quite costly and may not be worth the time and effort involved in house flipping.

Short-term capital gains, on the other hand, are taxed at personal income tax rates which are usually higher than long-term capital gains taxes.

Written by Julie Hanson

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