How to Flip a House: 3 Tips to Consider Before House Flipping

House flipping is a short-term real estate investment strategy in which a person buys a property, then sells it soon after for a profit. The property’s value can increase between the time of purchase and the time of sale either through renovations (sometimes called “fix-and-flip”) or rises in the housing market (sometimes called “buy-and-hold”). Often, house flippers use a combination of these two strategies to turn a profit.

While house flipping has a few advantages, including the potential to turn a profit quickly, there are some setbacks to this investment strategy. For example, if the house flipper completes the renovations and sells the house in less than a year, they will be responsible for paying short-term capital gains taxes.

Flipping houses can be a challenging project—here are some things to consider before you dive into your first flip:

1. 1. Assess your DIY skills. House flipping can have thin profit margins, which can further shrink when hiring contractors to do renovations. Some house flippers opt to take on their own renovations, like landscaping, painting, or resurfacing floors, which can save money and increase their return on investment (commonly called “sweat equity”). House flippers that are electricians, plumbers, or have other general contractor skills will have more options when it comes time to buy a property to flip since they can assess and carry out work in these areas. Take stock of your DIY skills and the skills you can develop before buying a house to flip.
2. 2. Think about your time. The amount of time that a project house requires can be similar to that of a full-time job—flipping homes is not a way to make passive income. If you’re interested in flipping houses, determine if you have enough time to flip homes and ensure that you’re comfortable spending evenings and weekends doing a lot of work on the property.
3. 3. Solidify your budget. In addition to expected costs, like down payments and renovation costs, flipping houses also comes with several expenses that may surprise first-time flippers—for instance, closing costs, interest on the loan, HOA fees, and utility bills. House flippers must factor in every cost before committing to a project.

If you want to learn more about the process before you start your first house flip, check out our beginner’s guide to house flipping:

1. 1. Research market conditions. The national and local housing markets are an integral part of house flipping—knowing up-and-coming areas or recognizing general rises and falls in the real estate market will help you make informed decisions about when and where to buy investment properties.
2. 2. Choose the house. One of the most important steps in successfully flipping a house is to choose the right property. In general, house flippers are searching for a property that requires minimally expensive renovations—like repainting, refinishing floors, or replacing carpet—with the maximum amount of profit. Properties that need costly repairs, such as roofing, plumbing, electrical work, or foundation repairs, can cut into profit margins. Note the home inspection and appraisal results—these assessments can help raise red flags before making your decision. Some house flippers prefer the riskier investment of purchasing properties that are under market value—for instance, “fixer-uppers,” “as-is” houses, foreclosures, or houses in which the seller is deemed a “motivated seller” (someone who’s in a hurry to sell).
3. 3. Purchase the house. When you’ve decided on a place you want to flip, you can make the purchase. Many house flippers will negotiate with the realtor and homeowner before agreeing on a purchase price to pay as little as possible for each property. House flippers often operate within the “70 percent rule,” or only buying a property priced at no more than 70 percent of the after-repair value (ARV) minus the cost of renovations. There are several different loan options for financing a flip: traditional mortgages, hard money loans (short-term loans from private lenders), or if you already own a home, a home equity line of credit (HELOC) or home equity loan (HEL).
4. 4. Assess repairs and renovations. Once you’ve purchased the property to renovate, the next step is to assess the necessary repairs. Make a list of all the changes the house could use, and decide which ones will be the most time and cost-effective. Most house flippers prioritize speed in their renovations because the longer they have the house, the more they have to pay in property taxes, HOA fees, and mortgage payments.
5. 5. Make the changes. After you decide on a game plan for the property, you can begin making renovations. House flippers have different approaches to renovations—some contract professionals, while others with DIY skills will complete their own upgrades.
6. 6. Sell. Once the renovations are complete, the flipper can list the house on the market with a real estate agent. The house’s list price will reflect the upgrades to the property, and ideally, the house will sell for a profit that the flipper can then use to purchase a new property and begin the process again.

All investments, including real estate investments, come with inherent risks which may involve the depreciation of assets, financial losses, or legal ramifications. The information presented in this article is for educational, informational, and referential purposes only. Consult a licensed real estate or financial professional before making any legal or financial commitments.

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