Did you know that, on average, people made around $60,000 when flipping properties in the first quarter of 2020?
If you’d like to make a bit of extra money, you may want to have a go at flipping houses. That said, you might not know how much money it takes to get started, and so you may not know if this is something you can do.
This post will break down the costs you’ll face when it comes to flipping houses. Once you’re done reading, you’ll be able to answer the question, “how much money do you need to start flipping houses?”
How Are You Going to Pay for Everything?
When flipping houses, you can pay for things on your own, or you can take out some kind of financing.
Paying for things on your own can be the safest way to approach this kind of project because you won’t have to pay back a lender if the project goes wrong and you end up losing money.
However, it can take a lot of time to save up the kind of money that’s needed to flip a home, and that’s why taking out a loan is often a good idea.
A lot of the time, you’ll find some banks provide loans to people that want to flip houses. These loans are known as ‘fix and flip loans,’ and they can help you get the money you need for your first project.
Note that fix and flip loans tend to come with different terms and conditions when compared to other kinds of loans. It’s because of this that you might want to read this post, which covers the question – “what are fix and flip loans?”
The Two Kinds of Homes You Can Flip
The amount of money you need to flip a home will often depend on the condition of the house.
When it comes to the condition of a home, you can generally split houses into two categories:
- Houses that require a lot of structural and cosmetic work
- Houses that only need cosmetic work
If you want to flip a home that requires a lot of structural work, you’ll need to spend a lot more money. Ideally, you want to figure out how much the repairs will cost before you purchase the home, so you can negotiate a lower purchase price.
Fortunately, if you bring a contractor with you when you’re viewing a property, they’ll help you figure out how much the work will cost. You can then use these sums when trying to determine if you can profitably flip the property.
If you’re flipping a property for the first time, you should think twice about taking on a house that requires structural improvements.
Such projects can be risky, and you might end up losing all your money if you come across a significant structural issue that you can’t afford to fix.
Thus, to begin with, you might want to think about only dealing with houses that require cosmetic improvements.
Cosmetic work generally involves cleaning up the home and replacing basic items inside of it. So, you might give the house a new carpet, and add a new layer of paint. You may also decide to update the kitchen and bathroom units.
When performing cosmetic repairs, you often spend a lot less when compared to homes that need structural improvements. However, flips associated with cosmetic improvements can still provide you with a decent profit.
The Cost of Contractors
Aside from the cost of the property, your most substantial expenses when flipping a house will be associated with the contractors that help you do the work.
If you’re short on money, you can do all the work on your own.
Luckily, if you’re only dealing with cosmetic repairs, this isn’t that hard to do. If you spend a bit of time on YouTube, you should be able to learn the skills that’ll help you get the job done.
Of course, doing the work on your own will take longer, and this could impact your overall earnings, as this time might be better spent at your regular job.
Now, if there’s any structural or complicated electrical work involved, you may want to bring in a professional. That’s because, in some states, certain kinds of household work needs to be done by a professional.
If this work isn’t done by a professional, you could get into trouble with the local authorities. Plus, if something goes wrong with the work you’ve done, you may not be able to get an insurance payout.
Following this, you might want to focus on finding a contractor that’s reliable and affordable.
The easiest way to approach this task is by asking your friends and family if they know of anyone that can help you. If they can’t offer any suggestions, you will just need to adopt a trial and error approach so that you can find the best contractor in your local area.
To begin with, you might want to give potential contractors some small tasks to see how well they perform. If they do a good job, you can then use them for all future property flips.
Don’t Forget Sales Fees
When flipping houses, you also need to account for the fees you’ll encounter when you finally sell the property.
For the most part, the biggest fees you’ll encounter here will be realtor costs. These individuals will take a percentage of the total sale price of the home.
If you’re planning to flip a lot of properties in the future, you might want to negotiate some kind of deal with the realtor. In doing so, you might be able to achieve a lower fee while still benefiting from the realtor’s services.
How Much Money Do You Need to Start Flipping Houses?
Now that you’ve read this post, you should know there isn’t a single answer to the question, “how much money do you need to start flipping houses?”
If you’ve never flipped a property before, learning that can be quite intimidating, as you now have to deal with a lot of uncertainty. However, the best way to tackle this is by taking on a small ‘flip’ and then recording the figures in a spreadsheet.
If you do that, you’ll learn about the various expenses associated with flipping a property. You’ll then know how property flipping works, and you’ll be able to use this knowledge to perform lots of successful flips in the future.
Want to read some more content like this? Check out our blog to see some of our new posts on investing in real estate!
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