What is House Flipping and How Does It Work?
I love talking about house flipping - it's such an exciting part of real estate investing! If you've ever watched those home renovation shows, you might think you know all about it, but there's so much more to flipping houses than what you see on TV.
Flipping: The practice of buying a property, making improvements or repairs, and then reselling it within a short time period to earn a profit. Flipping typically involves cosmetic updates, renovations, or taking advantage of rapidly rising market values.
House Flipping Through the Years
House flipping really took off during the 1980s real estate boom, becoming more popular through the 1990s and early 2000s. The 2008 housing crisis created new opportunities for investors to purchase foreclosed properties at low prices. Now, flipping continues to attract investors looking to create value in local housing markets.
Types of House Flips
Let's break down the main ways people flip houses:
Fix-and-Flip
This is the classic flip - buy a fixer-upper, renovate it, sell it for profit. You'll need to spot properties that need work but have good bones. Most fix-and-flip projects take 4-6 months from purchase to sale, though some might stretch longer depending on the scope of renovations.
Live-in Flip
Living in the house while you renovate it can save money and qualify you for owner-occupant mortgages with better terms. Plus, if you live there for at least two years, you might avoid capital gains taxes on your profit. The downside? You're living in a construction zone!
Wholesale Flipping
This involves getting a property under contract and then selling that contract to another investor - no renovations needed. The profits are smaller, but so is the risk and time investment.
Breaking Down the House Flipping Process
Finding Properties
Successful flippers use multiple sources to find deals:
Multiple Listing Service (MLS)
Foreclosure auctions
Direct mail campaigns
Networking with real estate agents
Driving neighborhoods looking for distressed properties
Analyzing Deals
The famous 70% rule states that you shouldn't pay more than 70% of the After Repair Value (ARV) minus repair costs. For example, if a house will be worth $300,000 after repairs, and needs $50,000 in work, your maximum purchase price should be:
($300,000 x 0.70) - $50,000 = $160,000
Smart Renovation Choices
Focus on improvements that boost value:
High-ROI Updates
Kitchen updates (new counters, cabinets, appliances)
Bathroom renovations
Fresh paint inside and out
New flooring
Landscaping for curb appeal
Essential Repairs
Never skip these critical items:
Foundation issues
Roof repairs or replacement
Electrical system updates
Plumbing fixes
HVAC maintenance or replacement
Avoiding Common Pitfalls
I've seen many flippers face these challenges:
Market shifts during the project
Unexpected structural problems
Permit delays
Contractor scheduling conflicts
Budget overruns
Legal and Money Matters
Success requires attention to:
Building permits and local regulations
Property insurance during renovation
Tax planning for profits
Business structure (LLC vs. Sole Proprietorship)
Keys to Flipping Success
The most successful flippers:
Study their local market intensively
Build relationships with reliable contractors
Create detailed budgets with contingencies
Manage their time effectively
Plan multiple exit strategies
Ready to Start Flipping?
If you're interested in house flipping, start with:
Reading books and taking courses on real estate investing
Building your professional network
Creating a detailed business plan
Starting small with your first project
Take Your First Step
House flipping can be profitable with the right approach and team. Bellhaven Real Estate offers expert guidance, access to off-market properties, and connections to trusted professionals in the industry. Our team can help you evaluate potential flips and avoid costly mistakes. Stop by our office to discuss your house flipping goals!