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Guide To Fix & Flip Houses for a Profit for Beginners

Fixing and flipping houses can be a highly rewarding activity. When done right, you should be able to walk away thousands of dollars in profit. In 2021, it was estimated that the average house flip profit was a whopping $65,000.

Even better, this is a project that beginners will be able to take on. All it takes is a little know-how. This guide will walk you through everything you need to know to start flipping houses like a pro and making big money.

Setting Out a Budget

The first thing that you need to do is figure out how much money you can afford to spend on your new house. This is the key to ensuring that you make a profit when you sell the house. Using this, you can avoid overspending when purchasing a property.

To set your budget, it can help to know the After Repair Value (ARV). As the name suggests, this is the amount of money you will be able to get for your house after you sell it. It’s best to do a little research into the local property market to find this figure.

You’ll also need to know how much you expect to spend repairing the property. This will depend on the type of damage that you need to repair. It can help to have a local contractor look over the property with you. Get their input on how much everything will cost.

If in doubt, you should over-estimate the amount that you expect to pay. You can expect there to be unexpected problems, which can lead to cost blowouts. Having a little wiggle room in the budget is the best way to stop these minor things from becoming catastrophic.

Once you have these figures, you can use the 70% rule in house flipping to learn how to set your budget. This rule states you should pay a maximum of 70% of the ARV, less the expected repairs. For an example of how this would work, let’s consider an example.

Imagine you have a property with an ARV of $150,000 and you expect to put $15,000 into repairing it. In this case, 70% of 150,000 is 105,000. Remove the money needed for repairs and you should pay a maximum of $90,000.

As long as you do this, you have a good chance of making money from the sale. Though you will still need to have the discipline to stick to the budget. Any blowouts and you will be eating into the potential profit that you could be earning.

Finding A House to Flip

Now you’re ready to start searching for a suitable house to purchase and try to flip. This is one of the most important parts of this process. You can spend all your time and effort creating a beautiful home, but if it’s in a bad neighborhood, you’re going to have problems trying to sell the house.

With this in mind, there are a few elements that you should be looking for when trying to find a suitable house for flipping:

  • Crime rate
  • Whether there are any schools nearby
  • If it’s an affluent area
  • Proximity to stores and other attractions

It can help to talk to the real estate in your local area. They’ll be able to discuss the local market and point out some of the places that you should be looking.

It’s also a good idea to do your research on the local market. Know how much an average house will cost. This will let you know whether you are getting a good deal on your potential property. It also lets you know how much you can expect to sell it for when the flip has been completed.

The next thing to consider is the type of house you are looking for. For your first flip, you don’t want anything that’s going to be too difficult. Avoid anything that has structural problems. This is why it’s best to pay for an inspection, to make sure that there aren’t any underlying problems that you’ll need to worry about.

Instead, you should be looking for something ugly. Though there isn’t anything technically wrong with these properties, the unappealing nature of these buildings will drive away any prospective buyers. Here are some of the things you should be looking for:

  • Bad paint colors
  • A room layout that doesn’t make a lot of sense
  • Gardens that are overgrown or are starting to die off

As long as it’s a simple cosmetic problem, you should be able to fix it. In many cases, something as simple as adding a fresh coat of paint will be able to greatly improve the price of a property.

Financing The Project

Once you’ve found a house that you like and which meets the 70% rule in house flipping, it’s time to consider how you are going to finance the operation. Usually, this means seeking a fix and flip loan. In this area, you have a few options that you might want to explore. You can either turn to a traditional lender or visit an alternative financing provider. Let’s look at both of these options.

Getting A Loan From Traditional Lenders

The first place that many people start is by turning to a traditional lender, like a bank. However, there are a few issues that you might experience with this type of financier, including:

  • Usually requires a strong credit score
  • It can be harder to qualify for a mortgage if you don’t plan on living in the house
  • Usually aimed at more experienced flippers. If you are a beginner, you might get charged a higher interest rate to compensate for the increased risk.
  • Can take a while to get approved, creating a risk that the opportunity will pass you by.

Though you might still want to turn to a bank for a loan, it’s usually best to turn to an alternative funding provider, like South Florida Funding Group.

Getting A Loan From An Alternative Financing Provider

Alternative funding makes it a lot easier to get access to the money you need to start flipping houses. Even better, you’ll be able to get quick financing. You’ll be able to get approved within a few days and the money will in your account shortly thereafter.

Plus, these are often referred to as hard money loans. This term means that the lender is giving you a lot of money, to be repaid quickly. Usually, the terms will last for between 6 to 12 months, which makes them the ideal choice for house flippers.

If you are considering turning to a Florida fix and flip lender, there are plenty of options that you can explore. Let’s quickly explore some of these funding options.

Rehab Loan

First, you might want to consider getting a rehab loan. This type of loan will allow you to pay for the costs associated with both purchasing the home and renovating the property. However, this type of loan comes with a caveat. You’ll need to stay in the house while you are completing the renovation or you’ll need to return to the house shortly after you complete the renovation.

Residential Transition Loan

A residential transition loan is backed through the collateral provided by a mortgage. You’ll be able to get the money needed to purchase and renovate the home. Though it usually has a maximum value of $2 million.

Bridging Loan

The first option that you might want to explore is a bridging loan. With this option, you will be able to put a down payment on a house, while you are in the process of selling your current one. This is most commonly used as one flip comes to an end and you are working on setting up the next one. After the sale, you’ll be able to use the money to pay off the loan.

This article goes into more detail about what a bridge loan is and how you can use it.

Talk to South Florida Funding Group

There are plenty of alternative financing options available. If this is your first fix and flip loan, it can be difficult to know what arrangement will suit you the best. Because of this, it’s a good idea to talk to one of our friendly team members. They’ll be able to talk you through the options, find the right one for you, and apply for the loan.

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Making The Repairs

Once you’ve found and paid for the ideal flipping house, it’s time to get started making the repairs. At first, the amount of work required can seem overwhelming. The good news is that this process can be broken down into a series of steps.

Finding Which Areas Need To Be Improved

It’s a good idea to spend the first few days going around the property and making a list of all the things you need to do.

As you are doing this, it’s a good time to think about what the future of the property could hold. Try to set a vision for what you want the home to look like. Do you want a relaxed atmosphere? What color scheme will best suit the house?

If you are struggling with this aspect, you might want to turn to social media sites, like Instagram. They’ll have plenty of excellent home decorating ideas that you can draw inspiration from. Once you have a clear vision, you can start looking for materials, like paint and tiles.

Setting A Time To Complete Repairs

Many flippers understand that managing their budget is important. But it’s also important to keep track of time. The quicker you can get the house fixed and sold the better. You’ll be able to move on to your next flip faster increasing the amount of money you can make each year.

There are a few simple ways that you can make sure that you can keep track of the time you are spending on your flip. First, it’s a good idea to make a list of all the things you have to do. Beside each item, write how much it is expected to cost and how long it is meant to take.

Like setting your budget, it’s important to allocate yourself a little extra time to complete the flip. All construction projects will run into unexpected problems, triggering delays. It’s how you handle these issues that will make the difference.

Choosing The Team To Help You Make The Changes

Once you know what you have to do, it’s time to get stuck in. If there are any structural problems, it’s best to start with them.

Many of the repairs you will be able to make yourself. Though you might need to turn to a professional to help you with some areas. There are a few tips you can use to get a good team to help you out:

  • Check qualifications. Make sure that the people you hire are capable of performing their roles adequately. This will often be a legal requirement, to make sure that everything will meet the construction code.
  • Look at reviews. There are plenty of websites that will allow you to check what previous employers had to say. You can also ask for examples of work that they have completed.
  • Consider the price. Managing the budget will be key when you are trying to make a profit by flipping houses. Because of this, it’s a good idea to source multiple quotes, choosing the tradesperson that offers the most affordable prices. It can help to communicate honestly about the amount you can afford to pay for the job.

Hiring a tradesperson will be essential when you are making a big change to the property. But if it’s a cosmetic feature, like painting or installing furniture, you should be able to do it yourself. If you are planning on flipping a property, you’ll need to get used to applying a little elbow grease.

The good news is that the cosmetic changes will make all the difference. You’ll be able to improve the curb appeal of a home, getting more buyers interested. This is the key to making a fast sale.

Preparing The Home for Sale

After you’ve finished, you should have a redesigned property that will appeal to buyers. Now there’s just one thing left to do. You need to sell the house and collect the profit that you have earned. There are a few things you need to do to complete this process successfully, these are:

  • Choose a real estate agent. This is the most important part of the sale process. It’s vital to get someone familiar with the local market. They will be able to help you find the right buyer. It’s a good idea to interview a few real estate agents to find the right person.
  • Stage the property. You will need to put in some furniture and other items. These are designed to help the buyer envision what their life in the house could be like. This is key to forming an emotional connection and convincing them to put in an offer.
  • Set a realistic price. It can be tempting to set a huge asking price to try and maximize your profit. But this technique can often backfire. You will likely end up scaring away potential buyers.
  • Be honest about any problems. Sometimes, you might find the house has a major problem and you don’t have the budget to repair it. In this case, it’s best to be honest about these issues. A prospective buyer should hear it from you, rather than finding out through a home inspection.

While these will put you in the best position to sell your home, it’s still important to be patient. It might take a few weeks for the real estate agent to find the right buyer.

Getting Ready for Your Next Flip

Congratulations, you’ve just made your first sale and collected your first profit. Now it’s time to look forward to the next flip. There are a few things you can do to get ready.

First, it’s a good idea to take some time to reflect on the experience. Think about some of the things that you did well and some of the areas that you should try to improve the next time around.

It’s also a good idea to talk to the team you worked with. If you are planning on doing more flips in the same area, it’s a good idea to try to build some long-term relationships.

Conclusion

Flipping a house will be a lot of work and will put your management skills to the test, as you oversee the construction team and find a way to solve whatever problems arise. But they can also prove to be a rewarding experience. When done right, you should be able to walk away with thousands of dollars in profit, for a few months of work.

By following this guide, you should be able to navigate the basics of fixing and flipping a home. After a few properties, you should have the experience to call yourself a master flipper. There you can move on to bigger, more complex projects, to earn a larger payday. 

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