House Flipping 101
The Different Definitions of House Flipping
So before we get into the “how to’s”, let’s clarify the definition of house flipping first.
When people refer to “flipping houses”, many are referring to the process of buying deeply distressed properties at auction, from foreclosure or bank short sales at a deep discount, then quickly “flipping” (selling) that property to a homeowner without much in the way of renovations. Although this kind of house flipping is popular and potentially lucrative, this not the kind of house flipping we are referring to here.
That kind of “flipping” relies on quick sales and even quicker profits. Unfortunately at the same time, this kind of “flipping” has given the real estate investing industry a bit of a black eye in the process. Not only is that kind of flipping oftentimes irresponsible (reason #1 not to do it), but there is also less profit in it than traditional buy, renovate and flip style of house flipping.
When you buy a distressed property, make no real improvements, then quickly “flip it” to a buyer, you really don’t add a whole lot of value to the end-user. But when you buy a distressed property, beautifully renovate and then sell it, you are adding real value. And with that real value, comes even greater profit potential. That is the kind of house flipping that not only provides excellent living spaces for families and individuals, but also helps to continue to strengthen the emerging housing recovery.
Additionally, house flipping is also oftentimes referred to and sometimes confused with wholesaling. Wholesaling real estate is often called “flipping” because a wholesaler “flips” a contract to a real estate investor who then does whatever they want to do with the property. I use wholesalers quite a lot and find them to be tremendously helpful resources for many of my house flips.
Neither of these kinds of house flipping are what my definition entails, but we’ll get into that in just a moment.
Flipping Houses For Profit: Not As Simple As They Say
Learning any kind of real estate investing, whether it’s flipping houses or buying homes to buy and hold, is not simple. It’s capital-intensive and is a lot of hard work. In traditional renovation-style house flipping, you need cash to buy the house, cash to make the improvements and then hopefully to get it all back (and then some) to make it all worthwhile to you.
I am not going to kid you, all these factors make house flipping a risky investment and not for everyone. It’s fast paced, fraught with potential risks, but when you do it right, the profit margins are very sweet indeed.
So whether you are just starting out flipping houses or are thinking about getting into it, whether on a part-time or a full-time basis, there are some beginner’s steps that will help to shorten your learning curve and get you flipping houses profitably in a short period of time.