I’ve written a lot on this site about owning rental property and being a landlord. For me, it’s one of the best ways to earn passive income. There is a good deal of work that goes into purchasing and renovating the home. But once that is done, for the most part, owning rental property can be a hands-off side hustle, especially if you hire a professional management company to take care of it for you.
A not-so-hands-off side hustle would be flipping a house. For those that may not be familiar with this practice, the term “flipping” refers to a short-term ownership of the home. The buyer (investor) purchases the property with the intent of renovating it and then selling it for a profit. This is done in as short a time frame as possible so that income can be realized to pour into the next flip.
Flipping isn’t easy. I have some friends who do this and have had some measure of success. But if you are looking to make money from buying and selling property, you will need to be fully aware of what is in store for you. Some of the concerns with buying and long-term ownership of rental homes also applies to flipping homes. However, there are a few additional concerns in particularly related to flipping homes.
So today, I’m going to take a look at what those concerns are and discuss what you can do to deal with them properly. If you do the following, you will find this is much easier to do.
Flipping Houses 101
If you are going to get into the business of flipping houses, here are five things for you to be aware of and practice.
Treating it Like a Business
Many people try flipping houses because they know someone who is doing it and it sounds like a great way to make some extra money on the side. But what they don’t realize is that when you start flipping houses, you are really starting a new business. You need to treat it as such. Unfortunately, most are ill-prepared to understand how to properly run a business.
To run a proper business you need to think through some of these issues:
- Do I have the mindset and passion to actually run a business?
- What are my long-term goals?
- Who is my market? What type of clientele will I target as buyers?
- Will I manage this myself or hire professionals to help me?
- What contractors in the area can I rely on to do the work properly?
- What type of accounting and bookkeeping software will I use? Can I do that myself?
- Who are my other connections that can help make this business successful?
These are key foundational issues to think through before you even research properties to buy. Having the answers to these will get you started in the right direction.
Having the Resources
Ultimately, it doesn’t matter how wisely you approach things by thinking through the previously mentioned issues. If you don’t have the financial wherewithal to make it happen, you shouldn’t be doing this. If you don’t have the money for flipping houses, then you can’t really do it, it’s as simple as that.
Of course, you might think you have the finances for it, only to find further down the line that this was not really the case. When that happens, it can be devastating to not only your business but personal finances. So, try to think ahead and look at what funds you have to truly rely on.
The best possible scenario for you to begin this type of business, is for all your personal debts to be paid off (except maybe your own mortgage). It takes considerable capital to buy and renovate a home. You will need a fully funded personal emergency fund (and eventually an emergency fund for the business) before you begin.
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Another resource you may not have thought of is time. Time, just like money, is an asset. You only have so much of it in any given day. So if you don’t have much of it due to your full-time job, flipping a house on the side may not be the best course of action. Especially, if it takes you away from and deprives you of more important family matters.
The Legal Angle
It can be easy, when you are dealing with things that you don’t have all that much experience with, to accidentally step over a line when it comes to the law or some regulation. This is true for those who are landlords and also for those looking to flip houses. There are local ordinances that you will have to follow when renovating a home. So don’t assume you can just do anything to the property. You may lose a lot of money if you act before asking.
In order to avoid that happening for you, you need to be as fully aware as possible of all the regulations that might prove pertinent, which is just a case of carrying out the necessary research. Beyond that, aim to hire a professional criminal defense attorney just in case you might need some legal advice or help along the way.
This is also another reason to thoroughly vet any subcontractors you might hire to work on the property. You want to hire people who know the local codes and will not skimp or cut corners on the work they do. It would be unfortunate if you got stuck dealing with a legal issue because someone you hired did shoddy work.
Steep Learning Curve
Like any other endeavor you would choose to pursue, there is going to be a learning curve to becoming successful in this business. You can’t simply hope to know all you need to know without putting in effort. You will actually need to spend some time and effort learning the ins and outs of the process. If you are not prepared with some foreknowledge of the process, you might find it challenging to make it all work out for you.
The best course of action is to talk to people who have done this already and spend some time shadowing them. Go to their job sites. Walk with them through their process, from beginning of flip to the end. Get involved and do some of the work yourself, even if you are not getting paid for it. This may take a couple of months but it will be well worth it to actually see a flip all the way through.
The best part of this is that you get to experience a flip without risking any of your money before you knew what you were doing.
Proper Timing
Finally, you need to make sure that you get the timing right. This is especially critical if you are going to not only turn a profit but make the largest profit you possibly can. If your timing is off, it will negatively impact the amount of money you will make.
There are times in the market where flipping works better than other times. When houses are selling quickly and there is high demand from buyers is a better time to be flipping than when the housing market has dried up. So you will have to pay attention to the housing market and the economy as a whole to know when to be more aggressive or when to back off a bit with your purchases. You don’t want to get stuck holding property because no one is buying.
And again, the timing has to be right based on your personal circumstances, family dynamics and financial situation. Leaping into the business before you are ready – especially financially – will have negative consequences it may take a long time to recover from.
Flipping houses can be a great way to earn some extra income. If you get real good at it, maybe it turns into your full-time job. But before you begin, think through the things discussed here. If you do, your chances of success will be much greater.
Leave a Comment or Answer a Questions Below: Have you ever flipped a house before? If so, how did it go? What other issues can you suggest for those looking to flip houses?
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