Guide to House Flipping: Strategies to Profit in the U.S. Market

From investment to side hustle, house flipping has become an attractive option for people looking to turn a profit while improving homes in their communities. With the right approach, flipping homes can be highly profitable – even for a beginner just testing the waters.

However, house flipping is far from easy. Like any other investment, it involves some risk, so you need to be prepared and make smart decisions for what houses to flip, when to list, how to plan upgrades, and more. Here’s everything you need to know.

What Is House Flipping?

House flipping is a process of buying a property, completing necessary or cosmetic renovations, then selling it for a profit. It’s also known as real estate flipping or property flipping. Unlike the typical investment in a home or building, which appreciates over time, house flipping usually involves buying and selling in a much shorter time frame with strategic efforts to increase the property’s value and earn a substantial return on investment (ROI).

There are two types of flipping:

• Fix-and-flip: Investors buy an undervalued home, renovate it, and sell at a profit.
• Wholesale flipping: Investors secure a property at a discount and sell the contract to another buyer for a fee without renovating the home.

How Does the House Flipping Business Work?

Starting a house flipping business involves a few important steps:

#1 Market Research

Not all teardowns are a good choice to flip. It’s important to research the trends in the real estate market, including historical appreciation rates and buyer demand, and identify the areas or neighborhoods with growth potential.

#2 Financing Your Flip

Veteran house flips may use cash to buy homes, but some beginners or growing house flippers rely on loans or home equity to cover the costs for the initial purchase. When you’re considering your budget, think about the holding costs, renovation budget, and closing costs to ensure you’re not paying more than you planned.

#3 Buying the Property

The key with flipping is finding distressed or undervalued homes that offer a strong profit margin. You can look for prospective homes through auctions, foreclosures, or multiple listing services (MLS). This may involve talking to wholesalers or real estate agents to find opportunities.

#4 Renovation and Upgrades

It’s important to focus your budget on cost-effective improvements that boost value and offer broad appeal, such as kitchens, bathrooms, and exterior upgrades. You should also fix any aging or worn aspects of the property, such as old, leaking plumbing, or damaged roofs.

Once you determine what you need to fix and how much you want to spend, make sure you hire a contractor with flipping experience. Unless you have extensive experience with home renovation projects, you can end up spending more to fix the problems that arise. In addition, cutting corners with quickie renovations to put the house on the market could hurt buyer confidence – and your sale.

#5 Selling the Flipped House

Pricing and staging are crucial aspects of successful flips. Working with an experienced real estate agent can ensure that you’re pricing based on the local comps and your home’s actual value, not the perceived value you have after putting time and effort into it. Real estate agents can also help you gain exposure for your listing and attract more buyers.

Staging a home is the practice of preparing it for sale by putting in “finishing touches” that highlight your aesthetic and functional improvements. This can include arranging furniture, increasing the flow of the space, and adding decorative elements like artwork, plants, and accents. If you’re not sure where to start, consider hiring an expert.

Best States for Flipping Houses

Success in the flipping homes business often depends on the location. Some of the best states for flipping based on affordability, ROI, and buyer interest include:

Traits of Successful for Flipping Investors

Flipping investors who thrive in the real estate flipping market share some important qualities:

• Network savvy to maintain strong relationships with contractors, real estate agents, and lenders
• Risk management to prepare for delays, market shifts, or unexpected repairs
• Analytical skills to evaluate budgets, renovation costs, and profit forecasts
• Local knowledge to stay compliant with zoning, permits, and disclosures

Common Mistakes to Avoid in Property Flipping

Even in the booming U.S. flipping market, it’s easy to get in over your head. Beginner investors often fall into common traps that can eat away at profits or derail projects completely. Here are some of the common and expensive mistakes to avoid when flipping homes:

#1 Overestimating the ARV

One of the biggest mistakes in property flipping is assuming a renovated home will sell for top dollar. The ARV is a projected resale price after renovations, but it’s not a guarantee. Misjudging this figure can turn a promising flip into a costly mistake. When in doubt, consult a real estate professional.

#2 Underestimating Renovation Costs

Renovations nearly always cost more, and take longer, than you expect. From plumbing issues to permit delays, budget overruns are a common problem in the house flipping business. It’s important to get multiple contractor bids before purchasing a property, then add a 10-20% contingency buffer to prepare for the unexpected.

#3 Choosing the Wrong Property

Not every cheap home is a good flip prospect. Some homes are in areas where the demand is low, the crime is high, or the infrastructure is lacking, putting an upper ceiling on what you can get for the home. Buying in the wrong market could mean your flip sits on the market for months. Make sure you research neighborhoods with rising home values and strong buyer demand to reduce risks.

#4 DIY Work

Some house flippers are contractors who use their skills to turn a profit. However, if you don’t have skills in home renovation, trying to save money by doing complex renovations yourself can backfire. Amateur electrical work, plumbing, or drywall can cause inspection issues, safety hazards, and high repair costs to fix your work. Take on DIY work like painting or landscaping yourself but leave the heavy lifting to licensed professionals.

#5 Skipping Permits and Inspections

Don’t be tempted to skip permits to save time or money. If you’re caught, you could face fines, have to redo work, or scare off potential buyers who want a clean inspection report. Check your local building codes, get required permits, and keep records and documentation.

#6 Misjudging Buyer Expectations

What works in one market may not work in another. For example, splurging on high-end finishes in a low-income area may overprice your home for the neighborhood. Make sure you aim for neutral, broad appeal and match design choices to the buyer demographic or comparable homes in the area.

Build a Profitable House Flipping Business

Flipping homes can be profitable, but it’s not a get-rich-quick venture. It’s important to approach your flips strategically, do your research, and avoid the mistakes that commonly befall new flippers to build a profitable and sustainable business.

Author Bio:

Michael Alladawi, CEO & Founder of Revive Real Estate, is a Southern California real estate veteran with a proven track record as a builder, investor, and respected home flipper. Michael created Revive Real Estate to share his industry knowledge and help homeowners maximize their profits when selling their homes. Michael’s passion for his work is as big as his desire to create lasting partnerships. For Michael, it all comes down to how much value one offers, both in business and life relationships.