House-Flipping For Beginners: How To Get Started
House-flipping is simply the art, science, and discipline of buying a residential property, increasing its value through hard and soft renovations, and putting it back in the market for a much higher price than when you first purchased it. There’s a reason why this has become a go-to for entrepreneurial types who love architecture, interior design, and investing: The profit potential is extremely exciting, and it’s also fun to see the before-and-after transformations of these homes, as popularized by a lot of reality TV shows like Masters of Flip, Zombie House Flipping, and others.
But house-flipping is more than just about the fun and games of doing renovations and coming up with excellent interior design ideas. It’s real work-and one that requires a lot of commitment and knowledge about the real estate industry. If you have enough capital, have a penchant for architecture and interior design, and have an insight into real estate trends, here are some pointers to get started on a house-flipping business.
Map out a detailed business plan.
House-flipping does not start and end with re-designing a home part; it’s a real business that requires investment and might cause some huge financial losses if done improperly. This is why it’s key to map out a detailed business plan that will allow you to estimate your profits and get your business on the right track.
The key parts of a house-flipping business plan include an executive summary that maps out your financial vision for the business, a thorough financial projection, and identifying the key people involved in the business. There should also be a section on your competitors and the demand for your house-flipping project. The plan should also include how much the project will cost, how much you have now, and how much you can expect to earn back.
Make some connections.
House-flipping is a business that requires more than just capital; it also requires a host of resources to help you finish every project. Do your research on the resources you can tap into, like a network of reputable craftspeople who are good at their jobs or people around you who have a good grasp of how the real estate industry is doing. One key factor that can help make a house-flipping business succeed is knowing high-quality wholesalers, realtors, and contractors to help you find and finish projects within or even below your budget.
Protect yourself with a business entity.
You always want to start on the right foot every time you launch a business, which is why choosing a business entity is always key. One of the best business entity types you can go for in terms of house-flipping is limited liability protection because it can provide you with a fallback if anything goes wrong (which can happen at any point, especially in businesses that involve construction). An LLC or a corporation can help keep you protected if someone wants to file a case against a residential property you flipped since it can shield your assets.
When you’ve finally settled on a business entity, obtain the proper permits and licenses. This includes insurance, EIN, and other documents you need to operate your business legally. The exact permits and licenses you need to apply for will depend on the scope of the work you want to do and the financial state of your business. You can still expect to have to file for several types of permits if you’re working in the construction business. Hire a business lawyer to help you sort out the requirements you need to meet.
Get some financing.
If you don’t want to risk all of your financial assets on this business, there is a wide array of fix-and-flip loans that you can explore. You can tap into your 401k, especially if you’re not planning on retiring anytime soon. Another option is a combination financing, which can include your skin in the game or nest egg, an investor or business partner, and even a well-reviewed lender who can help you find the best mortgage rates. At the end of the day, combined financing maybe your best option, and it’s most likely what you will end up going with since you’ll need multiple sources not just to purchase a property but to renovate it as well.
When entering the house-flipping business, make sure you know the scope of rehabilitation and renovations you can make. When you make projections about potential profit, make sure to err on the side of caution. You owe it to yourself and to your investors to know just how much you’re risking. Good luck!
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