House flipping business is a very lucrative and profitable venture. Because of the potential for exponential profits, many amateurs are turning to house flipping as an option for making a quick buck. On the other side of the coin are the cautionary tales of people who have ended up with negative equity because they did not bother to do research. At other times the economy is just not right regardless of how well you are prepared. There are many stages to the flipping process and you may select one or two of them to specialize in. This article explains how to start a profitable house flipping business.
First of all, you have to identify a house that is priced in a sub-prime category but which is located in such a way as to have incredible potential. The second stage is rehabilitating that house through repairs, additions and extensions. Ideally the final stage will involve reselling the property at a much higher price, hence skimming off the magnificent profits.
That is the short story. The long story is that anything can go wrong at any stage and cost you thousands of dollars. To be successful in the house flipping business, you will need to investigate not only the property itself but the market within which it is located. For example, you need to account for any liens and tax arrears that are attached to the property. They must be resolved before you can proceed. Some sellers are not courteous enough to warn you about encumbrances, preferring to sell the property and make a quick getaway. The building costs can also get out of control, particularly if you were given a wrong quotation in the first place. You need a reliable contractor that will stick with you in both good and bad times. Watch out for title clouds that might stop you in your tracks.
Setting and following a budget for your house flipping business
When preparing your budget, ensure that you consider the marketing costs. They can be considerable particularly if the house takes a long time to sell. Indeed, you need to be wary of holding costs which accumulate during the period when the property is waiting to be sold. These costs include taxes, insurance and mortgage payments. Operating costs in this business can be notoriously difficult to pin down since you do a lot of guesswork that is only right when you have beginner’s luck or when your experience means that you develop a sixth sense about hidden costs. The items that you will be liable to pay for include internet access, an office, transport, brokerage costs, construction, legal charges, marketing and decoration.
Sometimes there is a blurring of costs if you decide to live in the house whilst repairing it. Remember that a house flipping business is a business enterprise. Therefore, you may have to cost your living expenses and interim bills when working out the profit margin or loss that you have made. Unless you have built up a significant capital outlay, you will most likely have to borrow from a bank in order to start a house flipping business.
There are fees that arise due to early repayment which go over and above the standard interest rates. The lender may demand to take ownership of the title until their money is fully paid back. Do not just stick to the banks but also seek out alternative funding sources such as credit unions, building societies and home equity. Budget for a down payment as well as collateral if you are borrowing formally. Friends and family may come in to help in exceptional cases.
Make sure you have a comprehensive house flipping business plan
The failure to plan is the beginning of business failure. The house flipping business plan must be clear and succinct enough to give your potential partners, clients and investors an overview of what your objectives are. At the same time, it must be detailed enough to explain the nuances of the business that you propose. At the very minimum you need to have the following included:
- The mission, vision and operational strategy
- Market Analysis And Customer Segmentation
- A business case showing that the business is financial viable and sustainable
- A marketing and customer care plan
- An organizational chart and human resource policy
- A three-year expansion outlook
- A risk and rewards Analysis
You will need to make an informed decision about the business type that you will adopt for your company. The business type you select will determine who owns, runs and supervises the operations of the company. It’s also better to have a website for your house flipping business.
Getting professional support
Professional help is a key to operating a successful house flipping business. You will require a number of contractors to be able to complete the property rehabilitation. Some of these include architects, painters, attorneys, plumbers, electricians, landscapers and construction teams. This is an area where many property owners struggle with charlatans in the industry. That is why it makes sense to check out any prospective partners with the Better Business Bureau. This way you can ascertain whether they have been subject to some serious complaints.
Your local Chamber of Commerce liaison team will also provide you with valuable information about best practitioners within the various sectors. Ultimately you will be tasked with the duty of developing great working relationships with long term contractors. This ensures that you can return to them again and again as you flip properties. Remember that you are better off working with licensed people just in case they get it wrong and you need to get legal redress in the courts of law. The mortgage company may place certain restrictions on your contracting. It can even determine whether you are able to live within the property as you work on it.
Selection process for the property
This is one of the most essential stage for a house flipping business. Getting the right property requires significant experience and insight. Some websites have come up to provide home owners with easy access to great deals. Examples include Realty Trac and Zillow. You can also visit banking websites, court broker pages and the ministry of housing to get information on foreclosures. However, you are still required to visit the property and do a proper inspection. This should be done with the aid of your contractor and ratings officer. The television shows are only meant to give you an insight into the process. They rarely delve into the kind of details that you will have to go through if you are going to invest in property.
Your ultimate aim when flipping houses is to make a profit. However, in order to do that you need to have a very clear view of all your costs. You then compare the costs against your revenue. Make sure that you include your labor, lost wages and time in the calculation. The economic climate at the time is of vital importance because it will ultimately determine the resale price that you can command.
Why this is a good industry to explore
Many people have earned a lot of money from running a house flipping business. For example, Realty Trac has released reports to the effect that nearly 170,000 single family homes are flipped every year. Gross profits can average at about $50,000 per home. Urban conurbations are particularly lucrative . This is a great business opportunity that takes advantage of your experience and skills as a private home owner.
We wish you the best in your house flipping business! Check out our collection of business plans , and more business ideas.