According to a recent real estate report, approximately 68,000 homes were resold in the U.S. in the first quarter of 2024 alone.
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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 a home flip (the difference between the median purchase price paid by investors and the median resale price) was $72,375 in the first quarter of 2024. That's a very good amount for a short-term job, to be sure, but keep in mind that you'll need to spend a lot to get there.
• Improve neighborhoods: In areas where abandoned or abandoned homes have driven down prices, flipping a home can help restore property values. “Most of the homes I buy are in bad condition or the seller is in distress,” says Matt Atchison, real estate investor and host of the podcast “The 6 Figure Flipper.” “The great thing about flipping is that you can really solve a problem for someone while making a big profit that you can use to build equity.”
• Diversify your investments: Investing in different types of assets is considered a good way to reduce risk. As an alternative to stocks and bonds, real estate is one of the most popular long-term investments. Adding real estate to your investment portfolio can help you diversify your holdings, and you can turn those investments into cash by reselling the property.
Cons
• Potential for large financial losses: There's no reward without risk. Flipping a home comes with a lot of pressure to buy smart and act fast. You're responsible for paying all expenses while the property is on the market, including mortgage payments (if you financed), property taxes, homeowners insurance and homeowners association dues. “It can be financially taxing,” Atchison says. For this reason, it's important to have some funds set aside in case the flip falls through.
• Major problems can arise: It can be difficult to find a home that you can buy cheaply enough to resell at a profit. If unexpected problems arise, resellers can end up incurring costs that are much higher than expected. “What if you open it up and find asbestos, mold or termites?,” says Amanda Pi of Pi Home Solutions in Ridgewood, New Jersey. “When you remodel, there are all kinds of issues you can find.”
• Potential legal issues: If you find out that the home you purchase has title issues, or if the buyer discovers issues you didn't properly correct or address, there's always the possibility of litigation. Having a solid team protecting your interests is important, Aitchison says. “[I've]seen a lot of litigation on both sides. Hiring a good real estate lawyer is part of having the right team members in place.”
How to resell a house, step by step
• Set a budget: Flipping a home is expensive, so getting your finances in order is the first step. If you're a first-time flier, no matter how much you think you have, it probably isn't, says Pi. Don't be conservative, he recommends aiming for five times your current budget. If you're financing your purchase, get pre-approved for a mortgage before you start looking.
• Find a property: Next, find one that fits your budget. Browse foreclosures, auctions, and short sales to find one that best suits your budget and remodeling abilities. A local real estate agent with experience working with resellers can help you find the property with the best return on your 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 real estate agents will often take into account the post-renovation value of the home when determining how much to bid, and remember that in hot markets, you may end up bidding against professionals. It's a good idea to have multiple properties on the table in case you're outbid on your first choice.
• Set a timeline: Once you've bought a home, the clock is ticking. The amount of time you need to get it ready for resale will depend on the scope of repairs and upgrades needed. Whether that means a month or six, make sure you allow enough time to complete the work and also allow time for a building inspection (if required).
• Hire a Contractor: Unless you have the ability (and time) to do the repairs and renovations yourself, you'll need to hire a reputable contractor. Some contractors have teams that work on all areas of your home, but not all. Before hiring anyone, check their licenses and references, and also make sure the quote fits your budget and can meet your schedule.
• Sell the property: Once all your renovations are complete, it's time to put your 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.
• You don't have enough money: Stay within your means. Not every project is a major TV-worthy makeover that will earn you big bucks. Some renovations can be small cleaning and repair jobs that will give you experience and confidence. “The costs can add up quickly, and contractors can take advantage of you if you're a beginner,” says Pi.
• They think it's easy: Flipping houses doesn't require a license, but it's not as easy and fun as it's portrayed on TV shows. “It takes time and money, so you shouldn't just start doing it without thinking,” says Pi. “There are a lot of amateurs out there, and they fail and lose a lot of money.”
• Not putting together the right team: Working with experienced and reputable people is crucial, says Pi. Your team could include a more experienced mentor, a real estate agent, contractors, home inspectors, lawyers and even accountants.
• Not giving it your full time attention: Flipping houses is much harder if you also have a regular day job. “It's not a good side hustle,” says Pi. “If there's a problem on the job, someone has to be there. If you're going to do it, 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.