What You Need to Know Before Flipping Your First House

If you enjoy watching house-flipping shows on TV, you may have thought about giving it a try yourself. After all, those shows make flipping houses look relatively fast and easy. Before you get started with house flipping, however, you should learn more about what it entails and what kind of profit you could realistically make.

Understanding House Flipping
Generally, flipping a house means that you sell a property for a much higher price than you initially paid and that the sale takes place within a few months to a year of the original purchase date. There are two primary ways to flip a house. The first way is called a fix-and-flip. It involves buying a house that may be in poor condition or that may have outdated décor at a low price. After investing time and money fixing the house up, you sell it for the market price to turn a handsome profit. The other method of flipping a house is to buy a house at market value in an area with rapidly increasing prices. After waiting for a few months and without putting any work into the house, you sell it for a nice profit.

Choosing the Right Property
The key to turning a profit by flipping houses is to choose the right properties. If you intend to do a fix-and-flip, you should follow the 70-percent rule. This rule states that the price you pay initially for the home and the anticipated cost of repairs should be less than 70 percent of the home’s projected sales price. In addition, to avoid paying capital gains tax, the property’s repairs and the sale should be executed in less than a year.

Crunching the Numbers
There are a few primary components of a fix-and-flip deal that require your attention upfront. First, you need to know what the market value of the as-repaired home is. A real estate agent can help you with this aspect of the numbers. Second, you need to know what the cost of repairs is. Getting a few quotes from contractors can shed light on this. Finally, if you intend to finance your purchase with a short-term loan, you need to know the total cost of financing. The last thing that you want to do is to lose money on an investment. Spending ample time reviewing the numbers upfront can help you to avoid making a costly mistake with your next investment.

As you start your search for the right property to flip, it is important to have all of the facts in front of you. At MortgageDepot, our loan originators are available to answer your questions about the financing options available to you. To learn more, contact our origination team today.

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