Reality TV makes house flipping look like a fun way to generate income, even with their attempts at manufacturing a cliffhanger before every commercial break. You find a slight fixer-upper in the neighborhood, run a vacuum cleaner through it, slap on a new coat of paint, and sit back and count the offers, right?
Not only do we watch other people do this on the TV shows, but they do it in arbitrarily tight timeframes, all the better to create drama. ("The open house is tomorrow and this mess must be cleaned up!" yells the man who set the open house date himself, based on nothing.) You might watch these shows and think, I can do what they're doing, but I would take my time and enjoy it. It looks pretty easy.
If it were easy, everyone would do it. Real estate agents are especially likely to have jumped on the house-flipping bandwagon because they have so many potential properties in their sights and know how to sell them. But you're much more likely to find a realtor helping a house flipper instead of being one.
Let's look at things to consider before you try flipping houses.
House Flipping More Popular, Less Profitable
In 2019, house flipping accounted for 6.2% of all home sales in America, according to the year-end report by data provider ATTOM Data Solutions. This is up from 5.8% in 2018 and 5.7% in 2017. Flipping grew in popularity.
However, flipping also dropped in profitability, party because "the cost of buying properties continued to rise faster than gains on resale," says Todd Teta, chief product officer at ATTOM Data Solutions. The average gross profit nationwide was $62,900 in 2019, down 3.2% from 2018 and 6% from 2017. Gross profit does not include any cost of renovating the property either; it's simply the cost of buying the house versus what someone else paid for it next. Improvements cut into a house flipper's profit, and good work only gets more expensive each year.
House flipping is defined as buying a house with the intention of selling it quickly for a profit. "The time between the purchase and the sale often ranges from a couple months to a year," writes the financial advice website DaveRamsey.com. Sometimes improvements and repairs are made to boost the resale price; other times the investor simply waits while housing prices rise in the neighborhood and then sells the house without having touched it.
The best first step you can take in house flipping is to buy the flip with cash, says the website. This way you:
- Avoid interest. If you have to pay interest every month until you sell, you seriously eat into your profit.
- Won't be in a rush to sell. Cash flippers can wait out a slow market because they don't have interest payments piling up.
- Won't take on debt. "Doing any kind of 'investment' with debt is a dumb plan. Period."
A real estate agent with years of experience in your area can help you spot a good deal on a flip, set a reasonable sale price for the market, and focus your home improvements on what will help the sale.
Advice From a Professional Flipper
TV host Tarek El Moussa rode the house flipping wave to stardom with his show Flip or Flop, a show that started when he and his real estate agent wife made a whole episode as an audition and sent the tape to HGTV. Now he hosts a new show, Flipping 101, in which he gives advice to novice house flippers, such as the following.
Pros are worth every penny.
Flippers who expect to turn a bigger profit by making repairs themselves (with zero experience) often learn the hard way that they need to hire someone. They make another mistake by hiring someone cheap.
Pick a lane.
Business partners and couples can get bogged down bickering over every detail of the flip. Interpersonal conflict makes for engaging reality TV but not a pleasant house flipping experience. If you're flipping with a partner or spouse, designate whose in charge of what.
Remember installation costs.
In one episode, a flipper bought flooring tiles on sale to save money, only to spend thousands extra having them installed. Laminate would have looked just as good, said El Moussa.
Order supplies early.
The longer you hold onto a flip, the more you pay in property taxes and utilities. Don't waste time waiting for materials because you ordered them too late. You might lose your contractor if you suffer long unexpected delays because he might need to start another job.
Don't take design risks.
There's a good reason why every kitchen reno on TV ends up looking the same. Buyers are all looking for the same trending home décor. Learn what's considered dated, rip it out, and replace it with what's popular. Think stylish but mainstream. If you have far-out design ideas, express them in your own residence, not in the flip.
We hope you've enjoyed reading this good advice from experienced house flippers. It's not as easy as it looks on TV, but if you have cash on hand and think you might live in a good flipping market, talk with a real estate agent. You just may have what it takes to become a successful house flipper.
- Buying the flip with cash is your safest, smartest option.
- For any improvements or repairs, plan to hire professionals.
- Order materials early so you don't delay in rehabbing the house and putting it back on the market.