Flipping houses is one of the fastest ways to make money as a real estate investor. Unlike long-term buy-and-hold investing, flipping a house generates large chunks of profit each time you complete a project and get it sold.
That’s when it all goes well though.
Although flipping presents an excellent potential for rewards, it can also be very risky. Many rookie real estate investors decide to flip a house and end up losing money and wasting a ton of time.
So what sets an experienced house flipper apart from an amateur?
The investors that consistently flip houses for large profits have systems in place. They know what to do at every step of the process so that nothing slips through the cracks.
Developing a house flipping checklist is the best way to ensure success, especially when getting started. A proper checklist should include each step from buying (actually before that) to selling and not just the rehab itself.
In this article, we’ve laid out the framework for developing your own house rehab checklist. It will be especially helpful if you are new because we’ve pointed out some steps that are extremely important but aren’t as apparent at first.
Keep reading if you want to systematize your house flipping business!
It is nearly impossible to successfully flip a house alone. Here are some of the most important people to find early in your journey.
Many house flippers feel like they only need a real estate agent to list their houses once they’re ready. If this is you, you’re missing out on some serious benefits a helpful agent can provide. Beyond listing your properties to get top dollar, a good agent can provide you with market data, give recommendations on renovations, and look at the viability of a potential flip house based on its ability to be resold.
Unless you have a massive stockpile of cash, you’ll likely need lenders on your team to fund your project. Here are the three most common types of lenders:
Trying to do every renovation yourself will turn into a significant bottleneck. If you want to do any kind of volume, you’ll need some contractors on your team. Here are the most common ones you will need:
Before looking for houses to flip, it is important to understand your local real estate market. One of the most helpful data points is the median sales price. Most flippers try to stay at or below this number when they resale their flips because they know that price point is where most first-time homebuyers are looking.
Beyond that, it is essential to understand the current climate of your market by looking at the average days on market and months of inventory. If your market is trending toward a buyer’s market, you must be very conservative when running your numbers.
Although we discussed finding lenders earlier, you need to get more concrete commitments from them at this point. Before you begin submitting offers on potential flip houses, you need to know how much you can borrow and what interest rates you will be on the hook for.
On top of that, it is important to take inventory of your own capital since most lenders will not fund the total purchase price and the cost of repairs.
Finding a good deal is arguably the most critical step in flipping houses. Pay too much or buy in an area without much activity, and you can be behind from day one. Here are some tips for ensuring you make an offer that will ensure success in the long run.
Unless you have extensive experience estimating repair costs, it is wise to have your contractor view the property with you and determine a rehab estimate. Talk through renovation plans so they know what level of finishes you intend to put into the house. The renovation cost they provide to you will heavily affect your offer price.
Many house flipping articles and trainings recommend using the 70% Rule when calculating your offer. To do this, take the ARV (After Repair Value) of the house, multiply it by 70%, subtract off the repair costs, and that gives you the maximum purchase price.
While this often gets pretty close, we recommend a slightly different approach.
To calculate how much you can pay for a flip house, start with the ARV and subtract off every expense. Here are the expenses you should account for:
After subtracting off all expenses, subtract off your desired profit to determine your maximum offer price.
Depending on your method for sourcing deals, how you make your offer will be slightly different. If you are primarily looking on the MLS for deals, your agent will submit your offer. However, if you are sourcing distressed properties yourself, you will likely be interfacing with the owners directly. In this case, there will likely be more face-to-face negotiation involved.
Once you reach an agreement, it is time to get everything in writing. If you are using an agent, they will handle the paperwork. If not, you will need to put a purchase agreement together. Once it is filled out and signed, take it to the title company to get a closing scheduled.
Your purchase agreement will likely give you a set period to perform your own due diligence. This typically includes hiring a home inspector to perform a detailed inspection of the property. They will provide you with a list of problems that need to be addressed. If anything significant comes up, this is your time to decide if you want to continue, ask for a discount, or walk away from the deal. This will all depend on your experience level and the amount of margin you have built into your numbers.
Even though it is wise to think about the general scope of work when evaluating a property, it is not feasible to get into much detail at that point because you don’t even know if you’ll get the house or not.
Now that you’re under contract, you can use this time to prepare for the entire project. Putting together a detailed scope of work at this point will keep the project organized and prevent scope creep down the road.
There will likely be some materials with long lead times. To prevent this from causing delays in the future, go ahead and order these to keep everything on schedule.
Sometimes you can get away with simply putting trash at the street to be picked up by the city. But if you are planning a major renovation, you’ll likely need a dumpster on site for all the removed materials. You’ll need to schedule it to be dropped off at the right time so you can begin the demolition immediately.
Contractors are some of the busiest people in the world. If you wait until you close on the property to get on their schedule, you’ll likely have a lot of dead time. Be proactive and spend the time before closing getting the initial tasks coordinated.
It’s time to buy the property! In reality, you should check in periodically with the title company and your lender to ensure everything is on schedule.
But leading up to the closing, the title company will send you a preliminary settlement statement and wiring instructions for sending the cash required to close. Review the settlement statement to ensure everything makes sense.
If so, your next steps are to wire in the money, show up to closing, sign the documents, and get the keys to the house!
This will likely be the longest part of the entire process. Although every renovation is different, here are some tips for success.
Having an idea of the order of renovations will help you to properly schedule contractors and avoid dead time. Here is an ideal renovation order for you to start with. It can be tailored to fit your specific situation and scope of work.
This list can obviously be tweaked according to your specific project. Although the tasks are listed in order, many can and should be performed in parallel to save time. For example, exterior and interior work can often be done simultaneously.
Unless you have a general contractor that you have experience with and can trust to keep the project on track, you should plan to visit the job regularly. At many points in the project, it will be necessary to stop by at least once daily. Otherwise, the renovations can start heading in the wrong direction due to a lack of oversight.
One mistake many house flippers make, especially those without a house rehab checklist, is only thinking about the here and now. However, this often leads to schedule delays and inefficiencies.
Instead, you should always be thinking a couple of weeks out to ensure you will have the right contractors scheduled and the proper materials on site for them to continue making progress.
If several issues needed to be addressed from your initial inspection, you can have the same inspector do a post-renovation inspection to ensure those problems were fixed. If there are still issues, have the appropriate contractors come back and repair them. This will prevent these problems from being snags in the future.
With the renovations complete, it’s time to list the property and get it sold!
This is where you will need to work closely with your agent. They will pull comparable sales to determine the appropriate list price for the home.
To get the highest price for the house, it is helpful to hire a stager. Having a property lightly staged can make a tremendous difference in prospective buyers’ perceptions.
It is vital to have a professional photographer take pictures for the listing. The difference between pictures taken by their camera and a phone is drastic, and that is what will get more people in the door to view your house.
Once the pictures are done, it’s time to go live on the MLS (Multiple Listing Service). This is where you will get the most activity from potential buyers.
While the goal is to sell the flipped property on day one, that doesn’t always happen. Markets change, and it is important to listen to what the market is saying and adjust to get the house sold. This might mean lowering the price or offering incentives such as interest rate buy-downs. Don’t get too antsy with these adjustments though. Work with your agent to determine the right timing.
If you receive multiple offers, you must decide which one fits your situation best. While your first instinct is to take the one with the highest price, this might not be the best option. Also review the contingencies associated with each offer and choose the one that has the best combination. Remember, a high purchase price means nothing if the deal never makes it to the closing table.
Even though you performed your own inspections before and after your renovations, there might still be things the buyer insists on having repaired. Don’t take it personally. Unless they are unreasonable, it is often easiest to agree to fix them.
Once the buyer’s lender is ready, it is time to close the sale. There is typically less for you to do when you are on the selling side because you do not have to send in money. Instead, you’ll be getting a check! Simply show up to closing to sign the paperwork to finalize the house sale.
As you can tell, there are many moving parts involved with flipping a house. That’s why a house flipping checklist is essential. Without it, many tasks will likely slip through the cracks.
But if you stay organized and follow a system, flipping can be one of the most profitable real estate investing strategies. Follow the steps outlined here, and you will be on your way to success!