Do You Have What It Takes to Flip a House?

Hey everyone, welcome back to the blog! If you’ve ever thought about real estate investing and wondered if you have what it takes to make money flipping houses, this post is for you. We’ve talked about investing in short-term and long-term rentals on the channel before, but today I want to dive into a different kind of investment: flipping houses. This is a completely different beast and it requires much more consideration than many people realize when they first start. I’m going to tell you what HGTV won’t. Stay tuned to the end, because I’ll share a strategy you might want to try that could leave you with zero out-of-pocket expenses and owning real estate long-term. Let’s start with some simple tips: how to buy right, budget well, hire efficiently, and sell high. Let’s get into it!

First and foremost, the most crucial thing to remember when investing in real estate and flipping houses is to buy right. If you overpay and the numbers don’t work, it does not matter what else you do in the process—you will not make a profit. Overpaying for the property at the outset will, without fail, result in financial losses down the line. This stage of the process is where many individuals stumble. When acquiring a property for flipping, it’s imperative to consider more than just its potential resale value. You must also factor in all associated costs, including renovation expenses, closing costs for both purchase and sale, capital gains tax, carrying costs like taxes and insurance while you own the property, and a contingency fund to handle unforeseen expenses. Collaborating with an experienced realtor is invaluable here. They can provide you with local market insights to ensure your projected sale price aligns with market realities, safeguarding you from overspending during the initial purchase phase.

The second key aspect to focus on when flipping homes is to budget well. It’s paramount to research all of your renovation costs for the property. Seasoned flippers usually have a network of trusted contractors and have done it enough times that they can walk into a house and have a good idea of what it’s going to take. If you’re new to flipping, you need to consider what costs will be for the things you know you need done and estimate for things you can’t see upfront. For any projects where you lack a reliable contractor, your real estate agent can offer recommendations. It’s essential to incorporate the cost of each renovation project into your overall budget when determining your offer price for the property. Failure to do so can easily lead to overspending and ultimately cutting your potential profits. Take advantage of inspection periods to gather bids for necessary work. Additionally, I always recommend planning for the unexpected. I’ve seen too often new investors take on projects without realizing just how much work goes into renovations, only to blow their whole budget midway through when something happens to an HVAC system or a sewer line. Establish a contingency fund—a rainy day budget—to address any unforeseen issues that may arise during the renovation process. This approach will help safeguard your bottom line and mitigate financial risk.

Next, when investing in real estate and flipping houses, you must hire efficiently. You’re going to be paying for labor along with materials. Maybe you plan on doing very little, some, or all of the work yourself—that’s fine, but make sure you do it well. DIY flippers can be spotted a mile away, even by the most inexperienced of potential buyers, and that will end up costing you even more in the long run. When hiring subcontractors, you want someone who is going to do the job well, show up when they say they will, and not waste any time. One mistake I often see new flippers make is looking for the cheapest subs. Your friend’s cousin might be the cheapest, but what happens when he starts the job and doesn’t finish or does subpar work? Most contractors figure their bids on the cost of the materials for the work, the amount of time it will take to complete the work per person working, and additional costs to turn a profit from the labor and expenses. Again, working alongside your agent for recommendations is key while building a deck of trusted contractors. As a realtor, I’ve shown probably hundreds of homes that were flipped, and I will tell you that a well-done flip will bring exponentially more than amateur “lipstick on a pig.” While not overpaying for the work is important, hiring the right people who will show up and do a good job is just as crucial.

Lastly, when investing in real estate and flipping homes, you have to sell high and get top dollar, bringing our journey full circle back to step one. Selling your flipped home for maximum profit is crucial to realizing the full potential of your investment. However, earning top dollar requires strategy and execution throughout the process. It’s essential to keep the selling price in mind from the start; this will inform all of your purchase and contractor decisions. Before making an offer on a potential flip, consult with your agent to get insights into local market trends and home values in the area. Understanding the prevailing market conditions will help you decide if a potential property is worth the cost or too high of a risk. Effective marketing is key to attracting potential buyers and maximizing your selling price. Your realtor should have a comprehensive marketing plan that leverages various channels like print mail, email, phone calls, social media, etc., to get you maximum exposure. Experienced investors flipping multiple properties per year may have the opportunity to negotiate reduced commission rates with their agent with an established, mutually beneficial long-term partnership. By prioritizing strategic selling tactics and leveraging your agent’s expertise, you can maximize your profits and successfully invest in flipping homes.

Okay, you’ve made it this far. Maybe you’re interested in investing in real estate and flipping homes, but you don’t necessarily want to sell them when it’s all said and done. I believe the best way to build long-term wealth in real estate investing is not by flipping the house and selling it, but by keeping it as a rental and taking advantage of monthly cash flow as well as market appreciation. One strategy that can be extremely effective is the BRRR method. Maybe you’ve heard of it: it stands for Buy, Rehab, Rent, Refinance. What that means is that you buy the property with some financial investment from your funds upfront. Once you close on the property, you rehab it, which will significantly increase the property’s value. After the rehab is complete, you sign a lease with a renter to start getting that cash flow going and for income purposes on a new loan. Lastly, you refinance that property with a cash-out investment loan and get most, if not all, of your initial investment back to start the process all over again. I will tell you, this was a very popular strategy for years, but in the current market, it is extremely challenging. It is probably unrealistic to expect to get all of your upfront investment back, but this still remains the best strategy to have as little of your cash tied up in an investment and the rent will cover the mortgage and should ideally cash flow each month as well.

If you’d like to receive a list of homes for sale in Kansas City under $200,000 that could make a potential flip or investment property, comment “flip yes” and we will get you signed up. Of course, if you’d like to learn more or need a more in-depth conversation about your investing goals, reach out—my phone number and email are on the screen and in the description box below. As always, if you’ve learned something today, make sure to like this video and subscribe for more Kansas City real estate tips and lifestyle videos. We post a new one every Friday. Thanks, and see you next time!