Despite what you see on TV or hear from the real estate gurus that promote huge profits, flipping houses is not easy, and it takes a person with a specific mindset to be successful flipping houses. The truth is some of you are not cut-out to be house flippers, and a vast majority of you will never make the leap and buy your first flip.
In this lesson we are going to discuss the mindsets and skillsets necessary to become a successful house flipper.
Why are you here? What are your goals?
The first thing you should ask yourself before you continue on with the FlipperForce Academy or make your first flip purchase is why.
Why are you here? What are your goals for flipping houses? Is your goal to make extra income? Is your goal to quit your job and work for yourself full-time? Is your goal financial freedom or time freedom? .
Knowing your why is an important first step in figuring out how to achieve your goals, create a business you love, and create a life you enjoy living. Once you know your ‘why’ will you find the courage to take the risks necessary to get started flipping houses and stay motivated to achieve your goals.
What type of mindset do I need to successfully flip houses?
Flipping houses requires a person with an entrepreneurial spirit, a strong work ethic, courage and an appetite for risk. You need to have a passion for real estate, remodeling & a strong 'why', because if you don't you will get burnt-out quick.
Flipping houses is not easy and you will face problems along the way. If you don't have the courage, the passion, the determination or the risk tolerance to face these problems you will not make it in this business..
What kind of work experience or education do I need?
Flipping houses requires a number of different skill sets and experiences including financial analysis, real estate, real estate law, real estate sales, architecture/interior design, construction, project management, and accounting.
Although you do not need any formal education to flip houses, any experience with these topics will help build a strong educational foundation to become a successful flipper.
While experiences in these fields are helpful, it's more important to be able to identify your own strengths weaknesses and build an experienced house flipping team that you can help you learn, grow & scale your business.
Your team will act as your mentors and teachers along the way. If you have a question about a contract, call your attorney and ask them a question. If you have a question about construction, walk through the property with your contractor and ask questions about the construction process, methods and materials.
Throughout your first flip you will have many questions, problems and issues and your team will be an invaluable educational resource to help you learn along the way.
Do I need to have money to flip houses?
Buying real estate is expensive. According to Zillow, the median house price is $254,900
, and real estate is obviously much more expensive in urban markets on the East & West Coasts. When you account for other costly expenses as buying costs, holding costs & repair costs you could easily need over $300,000 in capital to rehab a property.
Option #1: Use OPM
The short answer is you use OPM (Other People's Money).
If you don't have the money to buy a flip property by yourself, you will need to use OPM to help you buy the property & pay for the project expenses. You can use other people's money by utilizing lenders, business partners, friends or family that have the money to fund your rehab projects.
Even if you are utilizing OPM's money, a lender will generally require some sort of down payment (generally 20 to 30% of the loan value). On a $300,000 purchase, the down payment could be close to $60,000 to $90,000.
So in order to flip houses with absolutely no money, you will have to utilize creative financing strategies and utilize multiple funding sources to get 100% financing for your projects.
For example, you could use a Hard Money Lender for the purchase price, and utilize your business partners funds for the repair costs & on-going holding costs.
In a later article, we will learn about different sources of Funding for Flipping Houses
and Creative Financing Options to use little to no money flipping houses.
So how do I start flipping houses if I don't have any money?
Option #2: Partner with Someone
Another option to consider If you don't have cash or don't want to take on debt is to partner with another local investor, friend or family member that can provide the funds to fund the deals.
In a partnership, both parties need to bring something to the table...If you don't have construction experience, what experience or skills can you offer to the partnership?
Option #3: Work as a Protege or Employee for a Local House Flipper
If you don't have any rich friends or uncles to partner with you could also as a protege for a local house flipper that could mentor you and help you get your feet wet flipping houses. Go to local investor Real Estate Association Meetings or Meetups and network with other house flippers and investors in your area. Ask them if they need any help and offer your assistance as a 'non-paid' intern.
Option #4: Wholesaling
If you don't have any money to get into rehabbing, you may also want to consider a strategy called wholesaling which requires little money upfront. In wholesaling, you are getting a property under contract at a discount, and then re-assigning the contract to another buyer for a small premium.
With wholesaling, you re-assign the contract before your take possession so you never need the funds to purchase or rehab the property. You will only need a $500 to $1,000 Earnest Money Deposit and potentially a few thousand dollars for Transactional Funding.
Can I have a full-time job and flip houses?
Flipping houses can be a good way to generate extra income on the side while you have a full-time job. In fact, I started flipping houses part-time while I had a full-time job working as a construction estimator at a local construction company. My full-time job required 50 to 60 hours a week of work, but I managed to work nights & weekends and flip 2 to 3 houses per year and generate a part-time income that matched my full-time salary.
This sounds great right?
Well in reality there were many struggles along the way. I wrote an entire blog post about what it realistically takes to flip houses part-time
and the things you need to consider to determine if flipping houses part-time is for you.
How much profit can I make flipping houses?
The average profit a rehabber makes on a rehab project is around 10 to 20% of the After Repair Value, but it varies depending on the project and the market.
A 10% profit would be on the lower end, and a 20% profit would be considered a 'home-run' by most rehabber's standards.
So for example, if a property's After Repair Value (Resale Value) is $250,000 a rehabber should expect to make between $25,000 to $50,000.
The House Flipping TV Shows always give the illusion that they are making hundreds of thousands of dollars on each flip, but honestly a lot of the numbers are fake & they don't take into account all of the project costs it truly takes to flip a house.
Right now the market is very competitive, so profit margins are being compressed. In expensive markets on the East & West Coasts, some flippers are making less than 10% profits of the ARV.
Can I lose money flipping houses?
Don't kid yourself! YES, you can absolutely lose money flipping houses if you don't know what you are doing!
How long does it take to rehab a house from start-to-finish?
A typical rehab project (3 bedrooms, 2 baths) with all new kitchens, bathrooms & finishes throughout can take 2 to 3 months to complete the repairs.
Once you finish the rehab, you also need to consider the time it takes to sell the property. In a hot market, you might be able to get an offer accepted within the first week, but it could take a few weeks or months in a bad market.
Once you get an accepted offer, it generally takes 45 to 60 days for the real estate/loan paperwork to process and to hand over the keys to the end buyer.
In a best case scenario, you could rehab and resell a property in 2 months. If the rehab project has contractor issues and the repairs get delayed or you have trouble selling the property it could easily take more than 6 months.
In our Project Management Lessons, we discuss How to Create a Project Schedule for your Rehab Projects
Can we really do this?
Every successful flipper in our industry started as a newbie just like you, but they took the time to invest in their education and had the courage to take the risks necessary to get started flipping houses.NEXT: BENEFITS OF FLIPPING HOUSES
Successful flippers have a strong 'why' that motivates them and empowers them to achieve their goals.
Successful flippers have the flipper mindset, that embodies an entrepreneurial spirit, a strong work ethic, and a passion for real estate and remodeling.
Successful flippers don't let excuses such as 'I don't have any experience,' 'I don't have any money' prevent them from getting started and chasing their dreams.
As a new flipper, you need to decide if you have what it takes to be a successful house flipper.
If you think you have what it takes, please proceed to the next Lesson....