Flipping houses is one of the most popular real estate investment methods. This model involves buying a distressed property at a discount and adding value through repairs and upgrades to sell it for a profit. There is enormous competition and decreasing supply in this area of real estate investing, so understanding how flipping houses go is crucial to turning a profit when opting for that approach.
If you have not been investing in real estate for a long time, flipping houses might seem like a risky business to you. Yes, there is risk involved, but there are specific ways to decrease that risk and increase the odds of successfully making a profit.
You can not bet only on luck when flipping houses and neither on speculation. Instead, it requires a very strategic approach with a well-defined thought plan and actionable steps. You can increase your chances of success by understanding the concepts and systems involved. In this text, you will find directions that you need to take to master flipping houses investing.
Marketing
It all starts with marketing. This is the most challenging part of the real estate investing industry because real investors are not experts in marketing, and if they try to do it on their own, they might come across lots of obstacles. Usually, a marketing agency or a professional marketer specializing in real estate investing can help out, but that means that there must be a budget for it. If you still want to do it independently, here are some strategies that might help you find your first deal.
Leverage Direct Mail
Direct mail is one of the most popular marketing strategies. It involves sending mails like yellow letters, postcards, and professional letters to the target audience. To implement such a direct mail campaign, you must purchase specific lists of potentially motivated sellers. You need to leverage different tools for automatic mail sending and adjust the strategy constantly so you can increase the response rate.
Leverage Inbound Marketing
You can also leverage inbound marketing, which focuses on attracting potential sellers through great educational content on a website. It is a cost-effective approach that takes time to bring results. Posting blog articles, vlogs, ebooks, and other content centered around the specific needs and questions of the target audience can bring remarkable success. The traditional methods like posting an ad in a newspaper are still effective because you can target the older demographic and highlight the benefits of your service.
Acquisitions
You need to have a team responsible for acquisitions and secure excellent deals with large enough margins so you can make the profit you desire. First, when a lead comes in, you need to do a comparable market analysis to determine the properties after repair value, and in that way, you can estimate repair costs, closing costs, and holding costs.
Then, you meet with the homeowners to build trust and get a reasonable estimate of repair costs. The next is negotiation with the homeowner if they don’t accept the initial offer. You need to have a clear maximum purchase price so you can negotiate within those limits.
What follows is finalizing the contract by signing all necessary paperwork. While the inspection lasts, you must finalize the numbers and ensure you there aren’t any mistakes that can cost you additional money.
Financing
Finances are a crucial segment of the whole flipping house process because, without finances, there will be no deal. You can use other people’s money to fund your deals, an option that will allow you to scale and grow. You can explore several funding strategies, such as private money lenders, hard money lenders, conventional bank lenders, partnerships, and seller financing.
Private money lenders are usually friends, families or people you know, and they offer the best terms for funding your flips. These loans are secured by a note and deed of trust and come with lower interest rates of 6 to 12%.
Hard money lenders are groups of businesses that lend money based on the property rather than your credit, and these have higher interest rates of 10 to 16%.
Conventional bank lenders are more suitable for long-term investments. They come with lower interest rates, but they typically require a 25% down payment, and you can’t secure them if you have a property in poor condition.
Partnerships involve working with individuals who have liquid cash or high credit, and the profits are usually split 50/50 or 60/40, depending on the agreement.
Construction
Next is the property’s construction, ensuring everything is within budget limits and on time. Construction management can increase profits by scoping the work and creating material lists, budget schedules, and subcontractor price comparisons.
Sales
It’s time to sell the property once the upgrading and renovation are complete. You can work with a real estate agent or sell the property yourself. If you are using a real estate agent, you can streamline the sales process more efficiently, but remember that you will typically need to pay a commission of 6-7% percent to the real estate agent.
If you are selling the property yourself, you can save on commission fees, but you need to handle marketing, negotiations, paperwork, inspections, and closing the deal. You should pass on this option if you’re not a seasoned investor.
How Property Managers Can Help
Property managers are really valuable in the house flipping process because they can handle tenant placement, rent collection, maintenance, and repairs and will free you to focus on finding new properties for renovation. A good property manager can make sure that your rental property runs smoothly and provides income regularly while you have peace of mind that everything goes smoothly.
Conclusion
Flipping houses can be a great investment opportunity for beginners, but it takes careful planning and execution. You need to master marketing, acquisitions, financing, construction, and sales so you can mitigate the risks and increase your chances of success. Equip yourself well with knowledge and build a good team by your side so you can turn house flipping into a profitable business.
