How to Flip a House 101 – Part 1
So you want to learn how to flip houses. You’re in the right place! Knowing how to flip a house the proper way is your #1 KEY to real estate investment success. The proper real estate education can be all the difference between raking in tens of thousands of dollars every year and going belly up. Luckily, we have Than Merrill and the pros from A&E’s “Flip This House“ and FortuneBuilders ready to take you step by step towards big-time profits!
Let’s get to it. You need FOUR parties to flip a house, depending on the work done.
1) THE SELLER
You can’t flip a house without a property to sell. The question is: what kind of property are you going to flip? We’re going to assume an average 4-bed 2-bath 1500sqft single family home. Your market may differ, but this is a good description of an average property. We’ll even go so far as to say it’s on a 5000sqft lot. Sound like something in your neighborhood? Good, because you want a property that you know is going to sell once you’ve the rehab.
Now you only want to go after properties that you can acquire for a healthy discount off of today’s market value — this is called instant equity. Preforeclosure, divorce, bankruptcy, probate, fire damage — the list goes on. These represent situations where the owner may be willing to sell at a sufficient discount to avoid a negative situation, especially if you can buy the house without an agent in the middle. You’re always PROVIDING VALUE to a selling homeowner.
How much of a discount? Generally 25-30% should provide a big enough comfort zone so if you ran your numbers incorrectly, you’re still in a safe spot.
You can find potential sellers by networking, direct mail, online advertising and more. Remember, provide value first. If you really want to know how to flip a house, start by understanding the different motivations of your sellers.
2) THE LENDER
Now that you’ve identified a house that you can get for roughly 30% off its current market value, you have to come up with the money! Hey I didn’t say it was going to be free. There are four primary sources of funding you can choose from:
- Your own money — not recommended as there’s no leverage
- Hard money lenders — expensive but readily available
- Private money lenders — the best source
- Banks and institutional lenders — generally too slow and cumbersome to act
Your best bet is to cultivate private money from friends, family and other acquaintances. Get your pitch down about all the advantages over traditional investing in bank accounts and the stock market. Offer them a rate and security that’s attractive and make sure they’re ready to move ASAP for the next big deal you’re going to show them. Don’t be afraid to screen interested parties to know who will be really to invest when the moment comes. Also look into Self-Directed IRAs as fantastic untapped reserves just waiting to be put to use.
Tags: Flipping Houses