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Key Takeaways
Flipping a house is the act of buying a property low and selling it quickly for a profit. Successfully flipping a house requires a lot of capital, careful budgeting, and a team of trusted contractors. There is the potential for big profits, but it also comes with big risks and potential losses.
If you watch HGTV every day, you'll come across a show featuring smiling people transforming ugly properties into jaw-droppingly beautiful homes. Sometimes these magicians are professional real estate investors, and sometimes they're just regular people, but most of the time, they resell their newly renovated properties for a tidy profit.
Welcome to the lucrative world of home flipping. According to real estate data firm ATTOM, approximately 68,000 homes were flipped in the U.S. in the first quarter of 2024 alone. That's 1 in every 12 homes sold. What's more, ATTOM data shows that flippers typically make more than 30% gross profit on each transaction.
Of course, in real life, house flipping isn't as easy as it looks on TV, so if you'd like to give it a try, check out our beginner's guide to house flipping.
What is House Flipping?
House flipping is when you buy a property, hold it for a short period of time, and then sell it at a higher price. It's called a “flip” because you can resell it in a short amount of time. This means that instead of buying a house as a residence, you buy it as an investment, which means you're essentially speculating in the same way you would with stocks.
Flipping a house might mean buying a property that needs repairs and renovating it so it's marketable, or it might mean holding onto the property until the market changes and you can sell it for more than you bought it for. Either way, the goal is to buy low and sell high, making a profit in a relatively short period of time (usually within a few months to a year).
House flippers need to have a significant amount of money set aside for the upfront costs of buying, maintaining, and renovating a home, they need to budget carefully to avoid spending more than they can recoup through the resale, and they also need a team of reliable contractors and service providers to help them complete the necessary work as quickly as possible.
The pros and cons of reselling a house
Flipping a home has many benefits, but it also comes with significant risks.
Strong Points
Potential for big profits: According to ATTOM, the typical gross profit from home flipping in the first quarter of 2024 (the difference between the median purchase price paid by investors and the median resale price) was $72,375. That's certainly a very good amount for a short-term job, but keep in mind that it takes a lot of spending to get there. Improve your neighborhood: Home flipping helps restore property values in areas where abandoned or dilapidated homes are driving down prices. “Most of the homes I buy are in troubled conditions or from troubled sellers,” says Matt Atchison, real estate investor and host of the podcast “The 6 Figure Flipper.” “That's the great thing I love about flipping, because you can really solve someone's problem while still making a big profit that you can use to build wealth.” Diversify your investments: Investing in different types of assets is often seen as a good way to reduce risk. One of the most popular long-term investments, an alternative to stocks and bonds, is real estate. Adding real estate to your investment portfolio allows you to diversify your holdings, and reselling the property allows you to cash out on your investment.
Cons
Potential for big financial losses: No profit without risk. Flipping a home comes with a lot of pressure to buy smart and act fast. When the property is on the market, you're responsible for paying all the expenses, including mortgage payments (if financed), property taxes, homeowners insurance, and homeowners association dues. “It can be financially draining,” Atchison says. For this reason, it's important to have some funds set aside in case the flip falls through. Potential for major problems to happen: It can be hard to find a home that's cheap enough to buy and resell at a profit. If unexpected problems arise, flippers could incur costs much higher than expected. “What if you open it up and find asbestos or mold or termites?” says Amanda Pi of Pi Home Solutions in Ridgewood, New Jersey. “When you're renovating, you can find all kinds of things.” Potential legal issues: If you find out that the home you bought has title issues, or if the buyer discovers issues that you didn't properly fix or address, there's always the possibility of a lawsuit. “Having a solid team looking out for your interests is important,” Atchison says.[I’ve] I have a lot of experience litigating on both sides. Part of hiring a great real estate attorney is having the right team members in place.”
How to resell a house, step by step
Determine your budget: Flipping a house is expensive, so the first step is to get your finances in order. If you're a first-time flipper, Pi says, no amount of money is likely enough. Don't be conservative; she suggests five times your current budget. If you're financing your purchase, get pre-approved for a mortgage before you start looking. Find properties: Next, find properties that fit your means. Browse foreclosures, auctions, and short sales to find one that best suits your budget and remodeling abilities. A local real estate agent who has experience working with flippers can help you find properties with the best return on investment. (However, you may have to pay commission, which will cut into your profits.) Make an offer: Once you've found the right property, it's time to make an offer. Professional flippers often consider the post-repair value when determining how much to bid. And remember that in a popular market, you may end up bidding against these pros. It's a good idea to have multiple properties in mind in case you get outbid on your first choice. Set a timeline: Once you've purchased your home, the clock is ticking. The amount of time you need to get it resell-ready will depend on the scope of repairs and upgrades needed. Whether it's a month or six, make sure you allow enough time to complete the work and factor in time for a building inspection (if needed). Hire a contractor: Unless you have the ability (and time) to do the repairs and renovations yourself, you'll need to hire a reputable craftsman. Some contractors have a full team that works on all areas of the home, but not all. Check their licenses and references before hiring anyone, and make sure the quote fits your budget and meets your timeline. Sell the property: Once all the renovations are complete, it's time to put the property on the market. A real estate agent can help you price and sell your home (but you'll probably have to pay a commission). If you make a profit, congratulations! You can put that money towards buying your next resale property.
Common mistakes when reselling a home
There are financial opportunities in flipping homes, but don't get into it without adequate capital, guidance, and preparation. Here are some common mistakes to avoid.
Not enough money: Work within your means. Not every project is going to be televised and pay the bills. Some remodeling jobs are just small cleaning and repair jobs that give you experience and confidence. “The costs add up quickly, and contractors are [can] “If you're a beginner, you shouldn't take advantage of it,” Pi says. Thinking it's easy: While you don't need a license to flip houses, it's not as easy or fun as it's portrayed on TV shows. “It takes time and money, so don't start out blindfolded,” Pi says. “There are a lot of amateurs. They fail and lose a lot of money.” Not having the right team: Pi says it's very important to work with people who are experienced and have a good reputation. That team might include a more experienced mentor, a real estate agent, a contractor, a home inspector, a lawyer, and even an accountant. Not doing your due diligence: Flipping houses is much harder if you also have a regular job. “It's not a good side hustle,” Pi says. “Someone has to be there if there's a problem on the ground. If you're going to do it, you should do it full-time.”
Conclusion
When it comes to flipping a home, it's easy to be blinded by the promise of huge profits. But before you dive into the project, make sure you can afford the possibility of loss. Even if your renovations go perfectly according to plan, the real estate market can be volatile, and high interest rates mean fewer buyers are available to purchase your home. Protect yourself for the future by having a solid emergency savings fund in case you lose money, and make sure you work with a trusted team before you buy.