Have you ever thought about flipping houses for some extra income? The people on TV make it look pretty easy, but is it really a viable means to making some additional dollars? Personally, it was never in our plans, but my sister and brother-in-law have made it a speedy reality. Less than three years ago, they bought their first flip house, earned more than $35,000, and have gone crazy with four more flip houses since!
In this post, written by my sis from VHHomeFlips.com, they’ll teach you:
- How to find cheap houses
- How to calculate the offer
- The best ways to renovate on a budget
- How to sell it for HUGE profits!
If you want to flip a house for some extra income, there’s nowhere better to find the information you need than right here. Enjoy!
How to Flip a House: From the Search to Sold!!
Why do we go through all the effort to flip a house every few months? It’s simple. We flip for our family. We are a husband and wife duo with 6 children, 6 years of age and under, and we just had our third set of twins. The money that we make flipping houses is going towards our children’s education. This is by no means our full time job–our flipping business is a ‘side hustle’. By trade, my husband is a chef (now truck driver) and I am a Registered Nurse. We both work our ‘career jobs’ full time while flipping houses on the side and raising our 6 kids. By flipping houses, we are exponentially growing our savings to support our family.
How Do We Find Houses?
Today’s real estate market is HOT–especially where we live. It is near impossible to get a good deal on a house to make a decent profit. Flipping houses is hard work, especially with our big family so we don’t want to put forth all kinds of time and effort to make just $10K.
So how do we find our houses?
In 2015, we started toying with the idea of investing in real estate. I contacted our realtor from 4 years prior who had helped us buy and sell our own homes and she set me up with a flex MLS account. Basically, she creates my ‘profile’ as to what areas I am interested in as well as maximum price. As soon as a house that fits my criteria is listed, I receive an email of the listing. The problem is, so does everyone else who is set up the same way.
So to try to get a jump on properties before they hit the MLS for all to see, our realtor puts the word out in her office that she has a couple who was looking for a ‘fixer’ and to let her know if anyone knew of anything coming on the market.
Houses 1-3: Pre-Listed
This method was how we acquired our very first flip. Another agent in her office notified her of a property coming on the market soon so we went and looked at it right away. I went with our realtor while my husband ran a 5K and placed an offer without him even seeing it! They ended up accepting my offer! Turned out, my mom worked with the lady who was selling the house!
And so it began….the start of our business and side hustle.
Here is the exterior of our very first flip–before and after!
Did it cost a fortune to transform this exterior? Nope. Costs included a couple hundred in paint, plants that were free from my own yard, and a minimal cost for some mulch. However, it took A TON of sweat and elbow grease!! We painted the house by hand and it needed two coats!
Our second flip we purchased in the same way through our realtor’s office before it hit the market.
The third, I actually won an online auction and purchased the house sight unseen. This house had gone on and off the market a couple of times. Initially, it wasn’t ‘ready to be seen’ and then the realtor who listed it could not handle the volume of interest. So it ended up never being seen and going to an online auction company. My realtor (worth her weight in gold!) did a lot of research on the property so we could have some knowledge of its specs. She noticed that it went up for ‘pre auction’ bids and notified me right away. I put in an offer and actually won! This was definitely the riskiest flip since we didn’t actually see it.
Houses 4&5: Word of Mouth
Our next flip we bought from someone my husband knows through a company he does business with. The man had recently moved his mother into assisted living, which meant the house was vacant. Oddly enough, it was right next door to our first flip! So we already knew the neighborhood and market there….which was HOT, HOT, HOT!
Currently, we are working on our fifth flip. We purchased this one via word of mouth through our neighbors. One of their relatives who lived there passed away and the significant other was undecided how to go about selling the house. I ended up calling her, introducing myself, and then set up a time to meet her at the property. When we met her there, we all went—all 8 of us. Might as well bring cute kids with to make my cash offer more appealing! Who can say no to cash and a hard working family of 8? 🙂
The key for us to find properties has been getting the word out to everyone we encounter that we are always looking for a house to renovate. If we can make the numbers work, we are always up for the challenge. (A note from Derek – She’s not lying when she says “always”. They just bought their recent house just 2 months after having twins!)
Long story short, all of our house flips we have purchased were never listed!
How Do You Know What to Offer?
If you’re looking to flip a house, understand that if you don’t do your numbers right, you could lose money. We rely heavily on our realtor (who has been working as a realtor in this area for a long time) for current value as well as what the ‘fixed up value’ could be. The ‘fixed up value’ can flex a bit depending on what we put into it. We discuss all of the issues that we see and what the potential cost might be.
When crunching all the numbers, you must also consider your fees. Not all bank fees are the same so you may want to shop around to minimize your closing fees, but often times a credit union or local lender will beat the rates of larger national banks.
If the house is listed and on the market, the buyer will pay approximately 3% in fees (so add that onto your price).
What is included in this 3%?
It is a combination of things:
- bank fees,
- mortgage title insurance,
- closing fees to the title company,
- deposits to set up an escrow account,
- and tax proration…just to name a few.
You will also want to plan on an additional $300 to get a general home inspection. If additional inspections are needed such as structural or mold, those are extra.
The seller will pay roughly 9% in fees.
Included in the 9% is…
- 6% realtor commission,
- owner’s title policy,
- transfer taxes,
- closing fees to the title company,
- administration fees,
- and the seller’s tax proration.
Other possible fees include a land survey, well/septic inspections, association charges, or home warranties.
If you are buying your house with your duffel bag full of cash that is not even listed (like we did with the last two properties), you will only pay a cool 1% paperwork/transaction fee if you have a realtor who can facilitate for you.
Now that you know the fees, you should also know what to target. A successful flip should bring in at least 10% of the sale price in profit. Otherwise, it’s just too risky and probably not worth your while.
Let’s walk through an example:
- Purchase price: $100,000
- Buyer fees: $3,000
- Renovation Estimate: $50,000
So your purchase price will be $103K and after renovation you will be all in for $153,000.
- Selling price: $200,000
- Seller fees: $18,000
- Take away: $182,000
Subtract the $153,000 that you’ll have into it and your profit totals $29,000.
As long as you sold for your asking price of $200,000 and you stuck to the budget, then your profit is officially greater than 10% of the sale price. The fee you will pay later on is when you claim this income for taxes. You will have to pay ‘capital gains’ tax which equates to 20% of your profit. OUCH! It’s best to set this amount aside right after your sale so that when Uncle Sam claims his portion of your profit, you are not scraping pennies together because you spent it.
When I walk through a property, I am constantly doing this math before I make an offer. Often a seller will counter back at a higher price, but you have to know your limit. We always tell ourselves, if the numbers don’t work, it was not meant to be. You cannot be so attached to and fall in love with a house if it is not going to make you any money.
Just because you want to flip a house soon and have the fever doesn’t mean you should jump on the first supposed deal. Be sure to crunch the numbers and know when you just need to walk away.
You’ve Got the House– Congrats!! Now How Do You Renovate On A Budget?
In the current market, a lot of buyers are looking for houses with character. Many of the houses that have ‘flip potential’ are older homes that have not been maintained over the years. In our experience, much of the character is still in these homes, it is just buried. In my opinion, sweat equity is far more valuable when restoring a home than any dollar amount of new product.
1) Put in Your Sweat Equity
Let’s take walls and floors as examples:
Many older homes will have original trim around the windows, doors, and base boards on the floors. The problem is much of the time there will be wallpaper on the walls and we all know how fun it is to remove wall paper… In addition, rarely, oh so rarely is there only one layer!
- The easy, expensive way out? Hire out someone to hang drywall over it. However, now the trim is no longer trim, but is flush with your new drywall. Well, now that just looks ridiculous and you just spent $250.
- The sweat equity route: remove all that wallpaper and put a fresh coat of paint or stain/poly on that trim. Besides your time, it will cost you about $20 and will ooze character!
Same story with floors…many older homes will still have their original wood floors in them. The question is, are they still there? How many layers of other floor are on top of them?
- The easy, expensive way out? Plop another layer of floor on top of what is already there. That will save time, right? Wrong. Now you will have to take off all of that original trim because your new floor will be against it instead of under it. Will you buy new trim too? Or take the time to remove it and put it back on? Since you are already taking the ‘expensive’ way out, I presume you will throw away that beautiful original trim and slap on some new trim. Just these two things will probably run you $1,500-$2,000.
- The sweat equity route? Roll up your sleeves, or better yet, don’t even wear a shirt with sleeves because removing layers of floor is true SWEAT equity. You will most likely need to rent a dumpster for all the decades of flooring you will remove, but what do you find? That original wood floor that can be restored and once again shine and ooze that character that everyone loves! How much would this route run you? Depending on the size dumpster you would need and the size of your room to refinish….maybe $400. And hey, with all that sweat shed, you can save on gym membership and lose a few pounds. 😉
Aside from restoring character with sweat equity to these homes, always keep your renovations classic. Stay away from too much personalization or crazy paint colors. Many buyers are not in the business of flipping houses and cannot see past a purple room.
I stick with grays and neutral color palettes. You don’t need to paint a house crazy colors to give it personality. That is more easily done with a patterned curtain or some décor, but again, nothing crazy.
2) Keep An Eye on Expenses
Remember that initial walk through you did? You estimated how much it would cost to fix up? Are you sticking to that budget? Have you kept track of your expenses? Do you have enough money to cover the renovation? Have you included carrying costs into your expenses such as insurance and utilities? When you flip a house, you MUST keep track of the numbers to be sure to clear a nice healthy profit for all your efforts.
We are to the point that we pay cash for everything – the house and renovations. How awesome not to pay any interest that would cut into my profit! The easiest way I have found to track expenses is through an excel spreadsheet. I hear some of your saying, “I don’t know how to do spreadsheets”, but it is very basic.
I have 3 just columns:
- description of item, and
The cost column I have as a $ column so that I can easily total it. Everything is in chronological order on my spreadsheet and the receipts stay in order and go in a photo box.
By doing this, I can easily total my cost column to check in on the budget and make any modifications needed. Not to mention, when it is time to report to Uncle Sam, I print off my spreadsheet to give to my CPA instead of dumping a pile of receipts on her desk for her to dig through. I do however keep them should I ever be audited.
Renovation Complete: Time to Sell!
It is no secret that when you go to sell your home, you want to get top dollar for it. Many wrestle with the decision of whether or not to use a realtor. It is true that you will have to pay your realtor seller’s fees, but to us, it is completely worth it.
She earns every penny by:
- putting together the listing,
- taking great pictures,
- setting up an open house,
- managing individual showings, as well as
- helping with any negotiating of any offers.
With our family of 8 and both of us working full time, it is extremely difficult to try to show the home around our schedules!!
When interested parties come to look at our properties, it is my goal to make them look like a home. How do I do this? Staging!
Thankfully, I have a large basement in my own home that I can store an entire house of furnishings in just one section! Yes, I have a couch, side chairs, dining room table, lots of beds and bedding, pictures, end tables, a coffee table, and lots of décor. By staging our homes, it helps potential buyers see how a room can function. Taking the guess work out of what to do with a space is key when flipping houses and wanting to sell quickly.
In review, get the word out that you are looking for a property, walk through and do your numbers, make your offer, stick to your budget, and sell for a profit! Stick to your numbers and you could clear $35K on your next flip!
What do you think? Are you ready to flip a house for a profit?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.