Are you considering a career in real estate? Choose a house flipping business. It is the best way to get profits from real estate, just like most of the world’s millionaires. House flipping is purchasing property to sell at a profit after improving or renovating it.
You must know how to flip houses and make good money today. Equally important is understanding how to set up this business before you flip your first house. This article will educate you on how to start a home flipping business from scratch.
Learn Flipping House Industry
The real estate market in the US is worth about $202.6bn in market value according to revenue from sales and brokerage. This is nearly double the value ten years ago. And house sales are projected to grow by 7% this year.
This is good news for anyone planning to flip houses. About 6 % of houses were flipped, which is more than 240,000 homes. It means the house flipping business is growing and prosperous. Some of the trends in the industry include:
Average Gross Profit
In 2021, the average gross profit from flipping a home was about $67,000. An increase of 90% and a 2% from the gross profit 10 years and 2 years ago respectively. After deducting the original purchase price, the gross profit remains. So, you get a net profit of about 40%.
Financing For House Flipping
People purchased more than 40% of homes using financing. This is money borrowed as working capital with the property as collateral. The financing is usually acquired from private money lenders or real estate investors.
Some Challenges Facing The Industry
Vacant homes are sometimes a target for thieves, and damage, leading to additional costs. The government has regulations discouraging house flipping through agencies like the Federal Housing Administration (FHA). They prolong the bidding process for property inventors by favoring owner-occupant buys.
Now, let’s see how to start a flipping business.
Create A Business Plan For Your House Flipping Company
A business plan is one of the essential aspects of starting a home flipping business. The plan highlights the goals for your project and how you’re to realize them. You should know to start a house flipping business with no money. Creating a killer house flipping business plan is key to success.
Here’s why you need a business plan
- Allows turning ideas into concrete thoughts
- Eliminates procrastinating
- Allows understanding your goals and how you’re to achieve them
- Forces you to tolerate risk
- Allows understanding your strengths and where you need to get assistance
- Shows seriousness about the project to people you intend to work with
- Gives investors confidence to give you money
Features Of A House Flipping Business Plan
After understanding why you must create a business plan when starting a flipping business, it’s time to show you how to come up with one.
The executive summary is where you show what you’re doing. It is a version of an elevator pitch and summarizes the business plan. It includes a mission statement with an overview of your project goals.
The executive summary is on one page to give the reader a basic understanding of your business ideas and what you bring to the table. We recommend writing this after coming up with the sections below.
Your mission statement states why you’re starting a house flipping business. The mission statement is usually one to three sentences, including your objectives and their inspiration.
It reveals much about your main ideas and business culture by laying the foundations for your business. A great mission statement for a house flipping business plan is clear and concise.
In this section of your house flipping business plan template, you highlight the financial projections. Comparative market analysis is a tool for comparing the value of your property against similar ones in the market. Doing due diligence ensures getting a wonderful deal.
Thoughtfulness is always rewarded with profits after flipping a house. Check for the value of properties in different neighborhoods before purchasing, on sites like Trulia, Zillow, and Realtor. You’ll be able to compare locations where you’re likely to make more money and buyer preferences.
Other ways to understand the property market in different locations include:
- Working with reputable realtors
- Joining real estate investment groups
- Finding listings online
- Reviewing foreclosure sale listings
Studying the market yourself is always the best way to know the property market better. This section aims to give the reader where the project fits in the current real estate market.
Your business plan should include the overall costs and where they will go. The financial projection considers the time flipping the property and all expenses for the project. Some of the potential costs to keep in mind include:
- Price of the property for flipping
- Cost of renovating the property
- Marketing cost to sell the property
- Other relevant costs involved in the project like realtor fees
Making a financial projection allows for identifying potential challenges and shows how you thoughtfully created your budget. Identifying all costs will allow estimating potential cash flow and amount for keeping the business moving.
Your plan should include how you’re to raise funds to finance your business. Some sources of funds for home flippers include bank loans, credit cards, personal savings, angel investors, government-insured loans, and conventional mortgages.
Here’s a brief about the possible sources of funds.
- Bank loans – these require viewing your plan and confirming your financials.
- Personal savings – money you saved over a long period.
- Angel investors – usually prefer a business with a national presence.
Most house flippers usually use personal savings or bank loans to finance their business.
Your Management Team
This section includes the organizational structure of your business. You have to decide whether your business is a partnership, limited liability company, or corporation. Each business structure has pros and cons that you must weigh before selecting the best one.
Selecting your business structure is very important since it determines the ability to borrow, attract investors, or mitigate risk.
You also have to talk about your relevant experience and unique skills in managing a house flipping business. Additionally, include all members of your management team, highlighting how their abilities will contribute to the business’s success.
You also have to talk about how you plan to market the business. The market plan includes 4 Ps with Product, Price, Place, and Promotion.
- Product – this includes your products which are rehab homes in this case.
- Price – how much you’re planning to charge for your properties
- Place- location and service areas of your house flipping business
- Promotions – how you plan to market your business
After buying homes and renovating them, you need to come up with a price that covers your expenses and leaves you with a net profit. However, the price should be competitive in the market. You have to target your marketing in locations where potential property buyers live.
Exit Strategy and Backup Plan
Finally, you also have to highlight ways to get out of business where necessary. You need a contingency for unforeseen circumstances. A business needs an exit strategy after considering various scenarios, including:
- If your property is not selling
- Failing to get appropriate credit
- How much you’re willing to sell the property
- Anti-flipping regulations when selling to an FHA buyer
Some of the exit strategies you may consider include fixing and flipping the property, buying and holding the property, and wholesaling the property to another investor.
Calculate The Necessary Costs
Running a house flipping business comes with costs. Some basic costs are funds to purchase and renovate the property, broker fees, and other costs. You also need money to keep the business running.
There are other ongoing fees in the house flipping business. To run your business efficiently, you have to cover the rental cost, business formation fees, title fees, ongoing renovation expenses, and software like Field Complete.
Other costs may include
- Building a website and SEO services
- Paying staff
- Vehicle maintenance and gas expenses
- Marketing and promotion costs
The average cost to start a house flipping business is about $19,267, with the minimum and maximum at $62 and $35,923.
Register Your Business
Registering your house flipping business is vital in establishing its legal existence. You must have the prerequisite documentation and authorization to work as a professional house flipper. This may require getting your Employer Identification Number (EIN) for taxation and loan applications.
You also need insurance to cover your scope of work in the industry. Many things may go wrong while house flipping, apart from running out of funds, inadequate labor, or material delays. There’s a likelihood of mishaps on the property, including natural disasters, vandalism, and injuries.
So, house flipping insurance is necessary for peace of mind and actively running your business. Some of the insurance options in the house flipping industry include:
- Dwelling insurance policy to cover vacant properties during renovation
- Builder’s risk insurance that covers materials subject to confirmation
- General liability umbrella policy to cover for injuries during the renovation process
Get The Necessary Permits And Licenses
Although a license is not mandatory to flip houses, it may help you better understand appropriate property laws. Your license will also allow direct access to the Multiple Listing Service (MLS) database. Here, you may reach various potential buyers of your property.
When renovating a house, you may have to follow building codes and have a builder’s license that varies by location. So, check your city or country for the appropriate license or permit. Obtaining a permit may take some time and cost quite some money.
Some of the home repairs that usually require a permit include:
- Adding or removing walls
- Installing a new drywall
- Undertaking foundation work
- Making additions
- Undertaking electrical, plumbing, and HVAC work
- Working on the basement
- Installing a new roof or making repairs
Open A Business Bank Account
You have to open a separate bank account for your house flipping business. A dedicated account for your business protects your assets when someone sues your business. You must avoid creditors from piercing your corporate veil.
A business account is essential when applying for loans and makes accounting and filing taxes easier. Clients will be paying you through the bank account, and you’ll use the same to pay suppliers and employees. You may open a checking account, savings account, or cash management account.
Hire Staff For Your House Flipping Company
Flipping houses involves buying low-value homes and then remodeling or repairing them to raise their value before selling them. Achieving this requires having a solid team of professionals.
You need a network of people with knowledge and expertise in various areas to join efforts and achieve a common goal.
Here are some of the professionals you’ll need on your house flipping team.
Before investing in a house, you must know the appropriate value to pay for it and how much you’re likely to make after selling it. So, you need a local appraisal who understands recent home sales in the area to estimate the value properly.
Gross profit is the difference between the cost of purchasing a house and how much you get after selling. The rule of thumb is to work with a local appraiser who understands the neighborhoods you’re planning to flip. Additionally, work with an appraiser with enough industry experience to understand the market dynamics.
You also need a bookkeeper to put the books of your house flipping business in order. The bookkeeper will track all expenses including business overheads, payments to contractors, and general costs.
The organized financial information is easy to turn into reports for the Certified Public Accountant (CPA) to use while assessing the performance of your business. You may also use the information to file and maintain tax records with authorization from the CPA.
Certified Public Accountant
The CPA tracks the financial performance of your business. Additionally, the CPA is the right person to advise you on setting up a sound financial structure. The CPA will ensure that your business has appropriate requirements before you begin to seek financing.
Another function of the CPA is to help in registering your business and determining its management structure. You’ll regularly work with the CPA for guidance on applicable property laws.
The ideal CPA should know federal and state regulations regarding home restorations and flipping, fee requirements, and local taxes.
Having a lawyer is very important in setting up a legal business. A lawyer for your house flipping business will give you appropriate legal advice regarding various aspects of setting up your business. These include creating a business plan, acquiring appropriate licenses and permits, and registering with appropriate agencies.
The lawyer will also guide you on filing taxes and other financial matters together with your CPA. Working with a lawyer will keep your assets from any liability risks. A lawyer will help you avoid potential loopholes while setting up.
Real Estate Attorney
Additionally, you also need a lawyer who specializes in real estate. You may have to face issues regarding billing, contracts, zoning, and building codes. Ignorance of these may lead to legal issues that may tie up your project or prevent a property sale.
Having a professional and experienced real estate lawyer offers someone to depend on when facing real estate issues regarding titles, pricing, permits, and liabilities.
Some house flipping projects may require having appropriate permits for approval by inspectors. So, you need the assistance of an experienced permit-expeditor to obtain them in the shortest time possible.
Permit expeditors are usually retired persons from the local permit or inspection department but are now working as consultants for builders. Assistance from a professional permit expeditor may shorten the permit acquisition and inspection process by weeks.
This is a lifesaver since time is money in the real estate industry. And, your profits depend on how fast you finish renovating a property and put it on the market.
After renovating a property, you have to put it on the market. A good idea is to get a professional stager to make it shine. A pro stager knows the right furniture and decor that may boost the marketability of a house.
This may significantly decrease the selling time and increase the buying price of your property. The stager will help you overcome challenges regarding floor plans by giving buyers an idea of how to enjoy living in a particular house.
Find Suppliers And Contractors
With your business plan, team, license, and bank account ready, it is time to find suppliers and contractors to work with. These must have a great portfolio of references and positive reviews and demonstrate the ability to do quality work.
Equally important is to get a dependable general contractor who will help you beat project deadlines. The contractor should also help you stick to budget projections for all projects. General contractors have experience handling various home construction projects.
So, you will have someone who will anticipate and help you avoid any issues. The ideal contractor will help you complete projects effectively, cost-efficiently, and faster. Your general contractor will arrange all home renovation work, including hiring subcontractors including the following:
- Tile setter
- Fencing expert
- Installers for flooring, drywall, and windows
Having a great team contributes significantly toward the success of your house flipping business. You need a cohesive team to fix and flip houses from start to finish successfully.
Make the website
Building a website is essential when pondering how to get into flipping houses business. A website for your business allows potential buyers to see your business as legitimate. Every business today needs an online presence since this is where to find most buyers.
Social media accounts, including Facebook, Instagram, and Twitter, are good. However, social media can’t work better than a website. The ideal house flipping website should include testimonials, licenses and permits, a gallery, contact details, and an address.
Most important of all, your website should have listings of your properties. This will allow buyers to have enough time to choose a property of their choice before a physical inspection.
Marketing Your Business
You’ve reached the final stage of starting your house flipping business. You have to find customers to buy your flipped houses. So, you need to use appropriate marketing strategies that will bring the best results.
Here are a few options for marketing your house flipping business.
Don’t Ignore Networking
Networking is among the cheapest solutions to marketing a real estate business. You have to go out and meet people at events such as functions for realtors and those of the Chamber of Commerce. Equally important is to attend real estate shows where you may meet potential leads.
You should also meet property experts and mortgage professionals to guide you on closing deals faster. Another networking opportunity is to join groups for property investors in your area where you may find potential buyers.
Use Bandit Signs
Another inexpensive method to market your house flipping business is to use bandit signs. Printing these signs may set you back about $7 to $20 with the potential to attract unlimited prospects.
Sticking the signs in the yards of all your properties will attract people who may be desperately looking for a new home.
Invest in Door Hangers
Using door hangers to market a house flipping business is affordable but highly effective. Everyone who goes through the door will have to take your hanger off. However, your message on the hangers will stick in their minds.
You should place the door hangers in locations such as rental communities where they may attract first-time home buyers. Another place to stick your door hangers is on homes where owners are having trouble with their home loans.
Door hangers are very effective marketing materials since they have room to add your details. The hangers have two sides where you can include your marketing message. You use one side for marketing related services or your other business.
Another wonderful way to market your house flipping business is to host webinars. You can do this without spending or at a low cost using various programs. Webinars are great for house flippers for allowing them to connect with various people regardless of their location.
The webinars may be about assisting distressed homeowners or promoting your business to potential real estate investors.
Schedule a free demo today to see how Field Complete can help you get started in the house flipping industry.