Wonder how to become a house flipper? We’ve got some easy steps and years of experience, along with money to fund your flip
Investing in fix & flip properties is taking the nation by storm thanks to the popularity of shows like “Fixer Upper” or “Fix or Flop.” Thousands are giving real estate investment a try, learning how to be a house flipper, and discovering that it works—especially in areas with solid markets. But the sad reality is that for every successful flipper, there are dozens behind them losing their life savings on bad deals. Is there a way to shore up your bets and ensure you’ll be successful? Yes! I call it “The 5 A’s.”
To become an expert at fix & flips, you’ll need to become proficient with Assessing, Assembling, Acquiring, Appraising, and taking Action.
Sounds so simple, right? As with all things, it’s much easier said than done. So let’s break down these 5 A’s together and talk about what they mean and how you can leverage them to your advantage. Plus, I’ll give you a few ideas for other ways you can become a successful real estate investor without ever having to look at paint samples again. Let’s dive in.
The 5 A’s For Becoming An Expert House Flipper
I see how house flipping can be extremely profitable and improve the surrounding communities, but what is the secret to becoming a truly profitable fix & flipper? Let me break it down into 5 easy steps which can significantly increase your chance for success with rehabbing and selling homes in half the time.
To become successful, the first thing you’ll need to do is assess how much cash you have available and your borrowing options. Cash is king in real estate, so having access to capital is non-negotiable. Even working with our $0 cash down loan, we still advise having around $5k for things like earnest money and unexpected expenses.
In addition, you’ll also need to learn how to assess the condition of a property quickly to determine whether or not there’s money to be made. Take the time to understand what money pits like structural issues, lead paints, or other things that will suck your capital quickly look like so you can make better judgments on whether or not your potential investment property is worth the effort or not.
Realistically, a house flipper cannot do all of the negotiating and rehab work on their own, and many hard money lenders will require you to have licensed professionals on your team before they’ll work with you so it’s essential to assemble a team of experts to assist you in your flip.
To become a highly profitable real estate investor, it’s essential to become knowledgeable in all aspects of flipping a home, from purchasing to rehab to resale, and surround yourself with experts in these fields. This team can include real estate agents, attorneys, contractors, project managers, hard money lenders, and gap financing resources. Make sure your dream team comes highly recommended so that your deal doesn’t suffer due to inadequacies or poor workmanship.
All the money and highest-ranked professionals in the world won’t matter until you’ve got your first property. To become successful at fix & flips, you need to hone your acquisition skills for sourcing inventory. Learn about the amenities your target demographic seeks and start scouting for hidden deals by Driving for Dollars.
You’ll also need to learn how to utilize comps to understand the going rate in your local market and the hidden information you can glean from them. Comps are the best tool available during the acquisition phase of your investment lifecycle, so don’t skimp on taking the time to study your marketplace thoroughly.
If you want to succeed in real estate investment, you need to stop being afraid of math. A great deal of math is included in determining whether or not a deal will be profitable. You need to appraise essential aspects of the deal, paying particular attention to the ARV and the MAO.
The ARV is the after-repair value of a home, or how much you will ultimately sell the property for once repairs and renovations are complete. Just as important is the MAO, or the maximum allowable offer – the highest acceptable price you will pay for the property.
Legitimate hard money lenders will lend up to 70% of the ARV; for example, if you purchase a home for $90,000 and plan to resell it for $235,000 (the ARV), then the hard money lender should extend a loan for up to $164,500 (70% of the ARV). This will cover the $90k you need to purchase the home, plus extra funding to use for rehab costs, closing costs, and other fees.
To calculate the MAO, take the ARV, multiply it by 70 percent, and then deduct the rehab costs. The final number is your MAO. For example, if your ARV is $200,000, multiply it by 70% to get $140,000. Then, subtract the anticipated rehab costs (say, $40,000), and you have an MAO of $100,000.
To ensure maximum profits on your deal, it is imperative to know the total amount you can pay for a property while still yielding a profit, plus how much the property can resell for.
Time is money, and immediate action is needed with every step of the fix & flip process to gain the highest returns on your investment. Even the smallest of marketplaces have competition, so waiting for the perfect opportunity will have you waiting in perpetuity while your competitors are scooping up “good enough” deals.
It’s completely normal to have fears about making your first few real estate deals, especially when money is tight. However, the more you let your fear overtake your willingness to act, the less of a chance you’ll have to become successful. Success is never guaranteed, but being averse to risk does guarantee you’ll never become successful.
Yikes, Maybe Fix & Flips Aren’t for Me. Can I Still Be a Real Estate Investor?
If any of those A’s made you think “nope!” then don’t give up hope just yet. Fix & flips aren’t the only way to become a successful real estate investor. Here are a few other popular methods.
Wholesaling is a fantastic way to break into real estate investing as it requires little money and completely removes the obstacles that go along with traditional loans. Wholesaling is the process of getting a home under contract and then flipping that contract to another investor for a profit.
Wholesaling is a win-win for everyone involved as it gets the house sold, earns you a profit without needing serious capital upfront, and drastically reduces the time your buyer needs to take sourcing properties.
Becoming a landlord is one of the best ways to ensure you retain a steady monthly income while self-employed. Many investors will use rental properties as a “Plan B” option should their fix & flip profits take a nosedive. Still, I’ve always had properties that I use exclusively as rentals in my inventory. The trick to being a successful landlord is having long-term tenants who are self-sufficient enough to let you be as hands-off as possible. I’ve got a blog post about how I keep renters for five years or more that can help you get started, so check it out.
Short Term Rentals
A lot of people don’t think about this, but short-term rentals are absolutely part of the real estate investment industry. Whether it’s vacation homes, AirBnBs, or even just renting out your own home while you’re away, if you’re making money by leveraging some sort of property for a profit, then you’re officially a real estate investor.
If you decide to focus on vacation rentals or rentals outside of your hometown, you’ll need to consider the fees that come along with outsourcing the management and determine whether or not it’s worth the effort and cost.
Become a Real Estate Agent
Both my wife and I are licensed real estate agents in our city, so I know how profitable an avenue it can be. Real estate agents typically earn their money via commissions on properties sold, so it’s not something I’d consider to be “steady,” but 3% – 6% on hundreds of thousands makes for nice paydays. You’ll start to learn where the up-and-coming neighborhoods are and collect a boatload of professionals that can be used later on if you decide to become a more active investor through flipping or renting.
Becoming a Lender
Maybe the process of fix & flips feels like a whole thing that you’d rather avoid, but you’ve still got money to burn. If that’s the case, consider becoming a hard money lender and helping other investors fund their rehabs. I’ve laid out the whole process for becoming a hard money lender in this video because there are a few things you’ll need to know about laws, how the business runs, marketing, etc. If you’re interested in breaking into the real estate industry but would rather stay behind the scenes and be the “investor behind the investor,” hard money lending might be the right avenue for you.
REITs are Real Estate Investment Trusts and are relatively passive methods of investing in real estate, but still count. Investing in REITs is typically a long-term investment strategy that many will use for things like retirement savings and IRAs, but that doesn’t mean they’re exclusively made for earning you an income in your retirement years. You can buy and sell stock in most REITs through an investment app like Fidelity or Robinhood.
REITs typically (though not always) work by setting up a trust in some region and using their stockholder’s investments to buy up real estate around the area, then paying dividends back to the shareholders. Like other investment strategies, there’s some inherent risk involved as you’re betting on the fact that the market will go up. Still, you might see REITs as “safer” since you can invest less and have it diversified across multiple properties. However, you give up a lot of control that comes with the other methods of investments and can rarely do it full-time.
Bonus: Your Own Home is a Real Estate Investment
Don’t forget about the investment you might’ve already made: your own residence! If you own your property, the equity you accrue becomes a return on the initial investment made. If you’ve been paying any attention to the markets lately, you’ve seen how much the prices on homes have skyrocketed. That’s a nice ROI made on doing nothing extra at all.
Your personal residence doesn’t have to be sold to be considered profitable, either. You can utilize that equity to refinance and use that as startup capital should you want to explore other avenues of real estate investing. The equity accrued will also increase your overall net worth, making you more of an attractive candidate for competitive rates on any sort of loan too. Look at you, being the accidental-yet-successful real estate investor!
Becoming a successful fix & flipper means taking intentional steps to ensure your property generates revenue and earns you a nice income. Follow these five A’s, and you’ll be so much further ahead in your business than winging it alone. And if it seems too far-fetched or gets overwhelming, there are lots of other ways you can break into the industry without ever looking at an itemized scope of work again.