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The appeal of the house flipping lifestyle isn't hard to understand: There's no job, no boss, and no limit to how much you can earn, limited only by the limits of your skills and ambition. Plus, you're doing good by doing good. Buying ugly houses, making them beautiful, and handing over the keys to proud new homeowners is a respectable way to make a living.
But is that really a life that average people with average backgrounds and average financial situations can achieve? In most cases, probably not, according to many experts who spoke with GOBankingRates.
First, the money issue
For aspiring entrepreneurs who want to get into the home flipping industry but lack the capital, the internet is filled with inspiring stories of newcomers who got into the industry without spending a dollar of their own money.
To be clear, there are documented instances of people who had very little money in their first property purchase who went on to become respected real estate professionals.
And while there are instances of undrafted walk-ons landing starting quarterback roles on NFL teams or local glee club singers winning “American Idol” and signing huge record deals, these are never the norm, right?
The reality is that it takes a lot of capital to flip a house, and without it you have to convince lenders and investors to take a chance on you, a beginner with no experience, no portfolio, no track record, and no desire to get in the game.
I wish you the best.
“Depending on the location and condition of the home, your credit score and several other factors, you may realistically need to pay well over $100,000 to resell the home,” said Tim Schroeder, a licensed real estate agent and owner of Agent Marketing Essentials.
Having cash is a good start, but it's just the beginning
Money is a big part of the equation, but success depends on more than funds. Without the skills, experience, and connections to scout and identify properties, estimate renovation costs, understand tax implications, outsource the work you can't do yourself, and acquire, hold, market, sell, and transfer properties, you'll find your once ample budget shrinking with each passing day. And in the world of property flipping, every day that passes is money lost.
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“It's a costly, high-risk investment,” Schroeder says. “Even experienced home flippers often have a success rate below 50 percent. Encountering noticeable problems like cracked foundations, mold, termites or broken water pipes can result in significant financial losses.”
People with a professional background have a big advantage
It's easy for aspiring real estate flippers to focus on the fun things that almost anyone can do, like picking out window treatments and comparing paint swatches, but that's only one piece of the puzzle.
“A whole host of problems can arise if you're not careful and cautious,” says Baron Christopher Hanson of Echo Fine Properties. “When is the rainy season in your area? Are there construction noise restrictions at night and on weekends? The problem is that a three-month plan can turn into a nine-month nightmare because you didn't anticipate the general irregularities.”
So who can succeed in a job that has so many obstacles? Most often, successful people have a professional background that matches the challenges of the job.
“The most successful home flipping investors are great project managers with one or more unique skills or functional advantages,” says Hanson. “If you're married to an architect; if you own a profitable bathroom, kitchen or pool contracting business; or if you're skilled at sawing and finishing hardwood, lumber or stone yourself, those functional advantages will be extremely useful in a lucrative home flipping career. What's more, if you can juggle two or three home renovation and flipping projects simultaneously (because you have the capital, skills, labor and material capabilities to do them nearly perfectly), you'll be able to make more money in less time, year after year.”
People who have side jobs are small fish that get swallowed up by stay-at-home dads
Most of the experts who spoke with GOBankingRates agreed on one thing: house flipping doesn't work as a side hustle. To be successful, you have to be fully committed to the project.
“I'm not saying you want to stifle competition, but don't try to do house flipping as a side hustle because it doesn't work,” says Rick Burress, professional home flipper, remodeler, and founder of Honey-Doers. “It requires a lot of time, effort, and attention to be put into it, not to mention experience. What you have to understand about flipping is that it's a big investment up front, a big investment, and a gamble. You're investing all this money into a home and then you're spending even more on remodeling. If it doesn't work out, you're out of the running. You can't have four projects going on at the same time and cover your costs and make a profit.”
You will also be competing directly with seasoned veterans with experience in your industry.
“To be successful in flipping a house, you need knowledge and employees who know what to do,” Velez says. “I work with the best people in the industry. I have connections in the industry. I get the best building materials, the best products at the best prices. And often times, you're already on a tight margin. If you're new in the industry and you don't know anyone, you're going to waste money. Why are some materials better than others? How do you know if the person you're hiring to help you is skilled? How good are they at staging? Think about this before you start flipping.”
Lessons learned from a real-life side hustle flipping houses
Joshua Nelson is a licensed bail bondsman in Amarillo, Texas, and owner of Allstate Bail Bonds. Late last year, he and a friend (who both have construction experience) decided to flip their first home, doing most of the work themselves.
“We were doing a complete interior renovation ourselves while running our bail bonds company, so at one point we felt like we had taken on a job that was beyond our capabilities,” Nelson said. “We had a lot of out-of-pocket expenses from the start. Because it was an investment property, we were required to put down 10 percent as a down payment. Because we were doing the work ourselves, it took several months to complete and we had to make multiple mortgage payments on the property. When we put the house on the market, it took a while to generate interest, and we ended up investing another $2,200 in painting the exterior.”
Here are some lessons he learned along the way:
Contractors are more expensive, but they save you time. Which is more valuable to you? Real estate agents make a big buck, so if you intend to flip homes regularly, it may be worth it to get a real estate license and work as a real estate agent yourself. Consider an interest-only loan, which allows you to pay only the mortgage interest for a period of time while you flip the home.
Nelson said the house is still on the market and that although he optimistically estimates a $10,000 profit, he would be happy to break even at this point.
“I can assure you that once this house sells, we won't be in a rush to do it again,” he said.
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