8 Proven Steps If You Want to Start House Flipping (And Make Money)

If the idea of flipping a house piques your interest, but the fact you have no idea how to invest in real estate is holding you back, you're in the right place. 

Popular house-flipping shows simplify the process into a 30-minute segment but successfully flipping a house can take a lot of work. 

If you're wondering how to start flipping houses and you're just starting your research, this step-by-step guide will show you how you can supplement your income by flipping houses.

House flipping is a term used to describe purchasing a house and quickly reselling it for a profit, also sometimes known as a fix-and-flip. In the context of flipping houses, quickly can mean anywhere from a couple months up to a year. 

Often, the goal of a flip is to find a house that has the potential to increase in market value after certain repairs and renovations. After you complete the remodel, you make money from reselling the home at a higher price than you paid for it.

This type of real estate investing offers the potential to deliver strong returns. But like any other investment, you'll be faced with risks as a house flipper. 

If you're just looking to get rich quick, you could end up damaging your finances. If, however, you launch your house flipping business with knowledge and a strategy, then you'll have the potential to do very well.

The excitement of your first project can lead you to ignore this less-exciting part of the process. But skipping the real estate research can lead to a disastrous house-flipping experience — if you're able to flip the house at all, that is. 

To be successful as a house flipper, you need to know how to pick the right property, which states are bad for flipping houses, and what the right purchase price is.

Once you start considering a house, you'll also want to look at comparable properties to get an understanding of what's selling and not selling in the area. 

Without doing market research, you won't know whether you're actually getting a good deal on the fixer-upper you're buying or whether someone will want to buy it once you fix it up.

You won't be able to identify the home's potential value, and you won't know how to price the house when you're ready to list it if you aren't familiar with the local real estate market. Keep in mind that the vision you have for your home should fit the reality of the neighborhood you're buying in.

To turn a profit as a real estate investor, you must be sure the purchase price of the house plus the costs of repairs and any additional costs will leave you with a desirable profit margin.

Once you have a solid understanding of the local real estate market, it's time to figure out how much you can afford so you can cover all the costs of flipping a house.

When determining the maximum price you should consider paying for a house, the 70% rule offers an easy guideline for new real estate investors. The 70% rule states you should pay no more than 70% of the after-repair value (ARV) of a property, minus your repair costs. 

For example, if a home's ARV is $125,000 and it needs $25,000 in repairs, then the 70% rule says you shouldn't pay more than $62,500 for the home: $125,000 x 0.70 = $87,500 - $25,000 = $62,500.

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In general, real estate investing can be expensive. The large upfront costs and the ongoing costs of repairs can quickly add up. 

Unless you have a pile of cash lying around, you'll probably need funding to finance your flip. Remember that going into debt to flip a house increases your financial risk.

The largest expense in house flipping is the property acquisition cost — i.e. what it costs you to buy a house. Luckily, there's more than one way to get funding for flipping. 

Your financing options could include getting traditional bank financing, opening a home equity loan or home equity line of credit, taking out a personal loan, or, of course, paying in cash.

Consider a hard money loan if you're having trouble securing a traditional loan. A hard money loan is a type of real estate financing that doesn't rely on credit score and income for approval but rather a hard asset, such as the property you want to purchase. 

The property is used as collateral, so defaulting on the loan can result in losing the property. Because the property is the primary means for determining your approval, hard money lenders usually offer higher interest rates and fees.

House flippers who take on debt to finance their flip will pay interest on that debt. Because of this, the amount you will have to sell the house increases just for you to break even. 

The cost of paying interest on a loan and the risk of using your project as collateral can be avoided entirely by paying for your flip with cash. Although this might not be feasible on your first flip, you may be able to work yourself up to goal over time.

If you decide to borrow money to fund your flip, don't be afraid to ask your lender questions about the mortgage process. Having a solid understanding of the lending process will make your flip go smoother.

A quality realtor, especially one with house-flipping experience, can provide the market knowledge and guidance you need to choose a smart real estate investment property. 

Your agent should understand the local housing market and current market conditions, help scout properties and find the right buyers, help find good contractors, and help you time your sale and list price to maximize your profit.

Working with a real estate agent from the get-go can help ensure your initial assessment of the property is accurate and aligned with your budget. Not being familiar with the area, the market, and how much you can sell your rehabbed home can be a very costly mistake.

To find a reliable realtor, start with your network and ask whether anyone can refer you to someone they've worked with. After you've found a few potential candidates, do some research. 

You can get a personal feel for them through their online presence, and you can check with your state's real estate regulator to verify that they're licensed.

Once you've narrowed down your choices, schedule a time to speak with each of them. Ask for references and follow up with those references about their experience working with each realtor. 

Don't move forward with that person if anything doesn't feel right. It's important to trust your real estate agent in this business.

With all your preparations complete — market research, setting a budget, deciding how you'll finance the flip, and finding an experienced realtor — it's time to close on the house.

During the closing process, ask whether you can enter the property so you can start the planning process. Take several general contractors with you and get multiple quotes. 

Get a sense of how each contractor will approach the job, and then choose your contractor. This way, you'll be able to hit the ground running on day one, as time is of the essence when it comes to the renovation process.

If you can swing a hammer, lay carpet or flooring, hang drywall, install a kitchen sink, or even roof a house, you can save a significant amount of money throughout the renovation process. 

Alternatively, you could do as many renovations as you can handle personally and hire out for the more difficult tasks. 

Although paying a professional to rehab your house will reduce your profits, you may not be able to do the repairs yourself due to your skill level or availability of time.

Ask your network for referrals for local contractors. Then, do your due diligence to vet them and make sure it's a good fit. Ask for references and if you can see their work firsthand. 

If you're unable to find a reputable contractor through your personal contacts, hop online and search sites such as Home Advisor and Angie's List.

Another way to boost your odds of making a large profit is to source your own materials. Use coupons and look at different shopping portals to earn cash back on your purchases if possible. 

Check out thrift shops and Habitat for Humanity for discounted furniture and building materials. If you want to save money, exhaust all your options to source your own materials.

This is also a great place to take advantage of rewards credit cards. Whether you're working on hitting a minimum spend requirement for a sign-up bonus or you just want to earn rewards for your spending, a little bit of strategizing can go a long way in reducing the costs of flipping a house.

The final step. This can be the simplest step if you've done your research and are working with an expert realtor. Hiring a realtor with experience flipping homes will make this step go as smoothly as possible. 

They can give you tips on how to improve the home's curb appeal. You can also tap into their expertise for pricing, but ultimately, you're responsible for properly pricing your flip as your profits depend on it.

If you've done your research early on in the process, you will understand real estate pricing and your home's market value before you get to this stage. 

As you continue to do more and more projects, your understanding of real estate will continue to grow and you'll begin to develop your own strategies around timing and pricing when it comes time to list your houses.

So you flipped your first house! Congratulations! How did your first deal go? Now is the time to look back over the entire house-flipping process and the choices you made.

Take some time to evaluate your experience. Gather all the numbers and tally the hours you put into the project. Look at your time spent and profit made. Figure out where you can cut costs. 

Maybe you're not happy with the contractor you chose. Take everything you learned and see where you can make some smarter money moves for your next flip.