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House Flipping 101

Jul 14, 2008
I am asked all the time, "How can I get started in Real Estate flipping?" People want to know how they can go out and Flip That House if they have never done it before and especially if they have no money to put into it. They want to know how to find the deals, how they can find the money, and how do they fix up the property if they have no construction knowledge or prior experience.

All of these are very good questions, some of which I was asking myself before I got started. But surprisingly there are some very simple answers to these questions. What they will require though is some very serious dedication to the application of the answers. It is very easy to be handed the answers but unless you put them to work and actually try to do the work necessary, they are worthless.

Real Estate is the best way to go from broke to financially independent in a relatively short period. More millionaires have been made through Real Estate than from any other industry.

One of the first things one will need is education. You need to know what you are doing and why. You need to know what to do and how to do it. Without this education you can still do it but you will be doomed to making mistakes all along the way that could ultimately cost you a lot of money. There are many great courses out there but one that I have found to be one of the most comprehensive is by Armando Montelongo. You have probably seen Armando on the A&E television show "Flip This House". Armando has taken house flipping to a new level completing as many 30 in one month. He went from broke to wealthy in a relatively short time himself. Now he likes to help others get started doing it for themselves.

Next you must find the deal. This is perhaps the most important part because this is where you make the money. If you can find the deal, most of the other parts will take care of themselves - even the money, because money follows the deal. You will be looking for motivated sellers. What makes a seller become 'motivated'? There about four main reasons that a seller will become very motivated to sell. One may be divorce. A couple going through a divorce are many times forced to sell their house to satisfy the needs of the divorce settlement. Most of the time, this has to happen quickly, which is great motivation. Another reason may be illness. If an income producing member of the family suddenly becomes ill or injured taking away their income, bills begin to accumulate and create a need to sell the house for some quick money. Probate is another great place to find motivated sellers. Siblings left with real estate through inheritance usually just want to turn the property into cash. And finally casualty would be the last category of motivated sellers. Bankruptcy or fire would create a situation where an owner may just want out.

Once you find the deal, the money will come if it is a great deal that will make money. Hard money is probably one of the best sources for money on a flip as well as private money because you can usually borrow the money for the repairs as well as the purchase. If an investor can make 10%, 15% or more on his money in a few months, that beats money market rates at the bank anytime. If you could complete a project in four months time and you promise an investor 10% on his money when the project sells, that would equate to a 30% APR return on his investment. Try to get that at the bank. What's more, their investment is secured by real estate. And if you used the 70% rule when you put the deal together, there will be plenty of profit at the end.

Fixing can be easy if you follow some basic rules. The first rule is "keep it simple". Many times newbies go into a project with grand ideas of extensive remodeling, additions and complete make overs. This can cost a lot of money. If finding the deal is where you make the money, fixing the house is where you keep your money. You can hire independent contractors to completely paint the house, repair a few dings in the walls and replace the towel bars for not a lot of money. Replace the carpet with inexpensive neutral colored carpet because new buyers usually replace the carpet themselves with carpet they like. Don't immediately assume that you have to replace the kitchen cabinets either. Many times simply painting the existing cabinets and replacing the hardware will make old cabinets become up to date. Although, it usually will pay to put in completely new appliances. But don't go overboard here either. Purchase appliances that fit the home. Appliances that you would put in a $500,000 house would be overkill on the $150,000 house.

The second rule of fixing is "keep it quick". Speed is the idea here. Every month that goes by is another month of principle and interest that will come out of you profit at the end. Adding an addition for example may take several months which will drain your pocket. The best way to keep it quick is to keep it simple.

The house is fixed so now it is time to sell. This where you realize your money. Quick and fast is the optimal situation here. Allowing a house to sit on the market for months drain you pocket quicker than when you were fixing because now you have spent all of the repair money. Become a motivated seller yourself. Don't try to set the world on fire with one project. Try to price your property as much as 10% below market. That will make it a great deal for the next buyer. You will still make a handsome profit and the new buyer will win with a great deal too.

Once you have mastered this process you can easily start doing 3 or 4 a year, but why limit yourself. Think about 1 a month. You can do it if you use a system. While one is in the fixing stage, you can be putting together the next deal or two.
About the Author
Greg Henss is a successful Real Estate Flipper who made his first million flipping houses. He now likes to concentrate on commercial real estate and has turned to helping others get started themselves. He frequently posts updates to his many blogs on the internet and writes articles for several websites including www.flipthathousewebsite.com and www.InvestmentClubs.TheIncomeAdder.com . He continues to be dedicated to getting others started in Real Estate Investing.
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