The Ultimate Beginner’s Guide to Flipping Houses

House flipping is all about understanding the real estate market and purchasing properties that can quickly be sold after renovations.

Table of Contents:

How do you start flipping houses for beginners?

What is the 70% rule in house flipping?

How do I start flipping houses with no experience?

What is the 51/49 rule in house flipping?

Is Flipping houses still profitable in 2022?

How much money do house flippers make a year?

How much does a house flip cost?

How many houses can you flip a year?

How can I avoid paying taxes on a flip?

How much tax do you pay on flipping a house?

What can you deduct when flipping a house?

Do you need good credit to flip houses?

Do you need to be handy to flip houses?

What is most important when flipping a house?

What is the 70 percent rule?

How long does it take to flip a house?

Summary

How do you start flipping houses for beginners?

Many people find the real estate market fascinating, and generally, the idea of flipping houses for profit has taken root over the past few years. Still, if you’re just starting you may feel lost in the process and the steps you should take to establish yourself in this industry. House flipping is all about finding the best deals in terms of houses that are undervalued but could be sold for a lot more money after some construction work has been completed. If you’re just starting in the house flipping business then following the steps outlined below will help you maximize the potential for success for your new house flipping endeavor. 

1. Market Research

One of the most important things that you need to complete before purchasing any property is market research. Especially if you’re looking to sell the property after flipping it you’ll want to make sure that the area the house is in is attractive to prospective buyers. You’ll also want to find out what the average prices for houses in that area are. In most cases, without having a full understanding of the market you won’t be able to determine whether the deal on the house is one worth taking or if it’s a deal that you should pass on.

2. Employ the 70% Rule 

The 70% rule is very simple as it simply states that when purchasing a property, you shouldn’t pay more than 70$ of the after-repair value minus the necessary repair costs. This rule will help you determine easily whether the price on a property you’re looking to flip is good. 

3. Know your skillset

Depending on your own abilities, flipping houses may be more expensive than you realize. This is especially true in cases where you’ll need professionals to take care of major parts of the construction. If you’re just starting with flipping houses, you’re very likely going to need to do a lot of the renovation work on your own to save money. Assessing your skillset and determining what you’ll be able to do is a critical step in starting to flip houses. 

4. Finances

Having your finances in order is crucial for flipping houses. Without having your finances in order, you’ll be unable to both purchase a house as well as, pay the cost of fixing the place up. Knowing exactly how you’ll cover both the renovations, and the house can help take a lot of the stress of flipping houses off of your shoulders. 

5. Sell the House

Finding a reputable real estate agent that can truly help sell your home for the right price fast is an incredibly important part of succeeding in this business. Knowing the market as well as how to advertise a home is going to be what makes your business a success, so finding a good realtor is a must if you want to turn flipping houses into a business. 

What is the 70% rule in house flipping?

The 70% rule is fairly simple. Essentially the rule states that you should never spend more than 70% of the after-repair value of a property minus the renovation costs on a property. For example, if the property you’re considering costs $100K and renovations for it would cost $10K then applying the 70% rule would look like this. 

70%100,000= 70,000

70,000 – 10,000 (reparation costs) – 60,000

Therefore, the maximum amount that you should pay for that property would be $60K. This principle will help you maximize your profits and will assist you in distinguishing between what is and what isn’t a good deal. 

How do I start flipping houses with no experience?

Having no experience isn’t necessarily a problem when first starting out. This is because your own lack of experience can easily be covered by building around you the right team of people who can help you with the house flip. Apart from experience having the financials of your flipping business in order is the most important thing when you first start as it’s through those finances that you’ll be able to pay for the right team to help you with your renovation projects. As time goes by and you flip more houses experience will come and the entire process will become much simpler. 

What is the 51/49 rule in house flipping?

In most businesses, especially when you’re first starting out, you’ll find that you’re made to give a lot of your time and effort and that giving doesn’t always yield results. Gary Vaynerchuk, who is a serial entrepreneur, coined the idea of the 51/49 rule, where he states that when building a business, you should give more of your time and effort and receive less. In house flipping businesses this rule can be incredibly important when you’re first starting out as you’ll want to ensure that you’re giving a lot of your time to successfully build up your skills and create a business in which you’ll be able to receive more. 

Is Flipping houses still profitable in 2022?

There is no indication to suggest that flipping houses will no longer be profitable in 2022. While certain reports show that the real estate prices won’t rise at the same rate that they did in 2021, prices are still predicted to rise at a slower pace. This means that by flipping a home you’re still likely to make a great profit in 2022, so long as you choose a good deal in a real estate market that is active and has a lot of movement. 

How much money do house flippers make a year?

The earnings of house flippers aren’t usually calculated per year. The reason for this is that certain flippers may complete the process of buying, repairing, and selling a house much faster than others. In other cases, some flippers may take on several different projects within the year, while others will take one or two. While their estimated earnings aren’t calculated yearly, we do know that most house flippers make an average of $30,000 for every flip that they complete. This makes house-flipping an incredibly profitable business for those who take it seriously. 

How much does a house flip cost?

Normally when estimating the costs of a house flip you should expect it to be around 10% of the purchase price of the property. While that is a generic rule, 10% will normally help cover all the repair costs for the property whether those are big or small repairs. 

How many houses can you flip a year?

Real estate investors that are in the business of flipping homes will normally flip an average of 2 to 7 homes. Depending on the property availability, the extent of repairs necessary, and the activity in the market that there in that number can be higher or lower. Having the financial means to complete many flips is also a key element for anyone in this business. 

How can I avoid paying taxes on a flip?

If you’re looking to keep fixing and purchasing properties then selling them under a 1031 exchange can be the perfect way of reducing the taxes that you’ll need to pay for the property. A 1031 exchange allows you to sell the property for capital gains and use that amount to reinvest into a new house flip. By reinvesting you’re avoiding having to pay any taxes on the capital gains of the property. 

How much tax do you pay on flipping a house?

If you have turned flipping houses into a proper business, then you’ll need to consult with an accountant to determine all the possible taxes that you could avoid paying. Normally, a 1031 exchange is suggested for those who are looking to keep investing in new properties. Other real estate tax exemptions may also be available to you through your business. 

What can you deduct when flipping a house?

One of the best aspects of flipping houses is that a lot of the things that you’re doing could result in tax deductions. This is true in cases where your house flipping business is a legitimate business for which you file taxes. The potential tax deductions that you could benefit from include: 

• Labor cost
• Utilities
• Administrative and office expenses 
• Purchase price of the Home
• Material costs for the renovation

As a lot of your business expenses relate directly to the renovations it’s always wise to keep all your receipts to claim as many deductions as possible from your future taxes. 

Do you need good credit to flip houses?

The answer to this depends on a very simple question. Will you be using a mortgage to finance the house flip or not? If you’re looking for a mortgage, then having a good credit score can be extremely important for convincing a lender to give you the amount that you’re requesting. Normally, a credit score of 620 or above is necessary for anyone looking to get a mortgage. If on the other hand, you’re cash funding the entire house purchase and renovation costs then your credit score isn’t important to the process as you won’t need to pass a credit check from a lender. 

Do you need to be handy to flip houses?

Being handy will certainly help when flipping houses. This is especially true when you’re first starting, as you’ll most likely need to complete parts of the renovation work on your own. However, being handy isn’t necessarily a requirement if you have enough money to pay for specialized workers to take on all of the tasks relating to the house flip. 

What is most important when flipping a house?

The most important thing when flipping a house is putting the house back on the market quickly. Flipping houses should be a fairly quick process in the sense that you should purchase properties, complete renovations, and sell them within a few months if not weeks. Having speed will help increase the number of flips that you can complete in a year and in this way, you’ll increase your earnings. 

What is the 70 percent rule?

The 70% rule states that you should never spend more than 70% of the after-repair price for a property that you’re about to flip. Once you have determined what that 70% looks like you’ll also need to subtract the essential renovation costs to come up with the actual amount that you can spend on purchasing the property. 

How long does it take to flip a house?

The average time that it takes to flip a home is 6 months. However, there are cases where the process may take less or more time depending on the amount of work that needs to be completed on the property. Structural work or more specialized work will oftentimes take longer than decorating and renovating individual rooms will so that is something to consider in this process. 

Summary

Flipping houses can be extremely profitable for those who manage to renovate properties fast and who can put those properties up for sale quickly. Flipping houses is all about understanding the market and knowing what is and what isn’t a good deal. Therefore, researching the market and understanding your skills and finances are the two most important steps in creating a successful flipping business.