Flipping houses can be a lucrative field and you don’t need a degree to get involved in real estate. But flipping houses can also break you physically, mentally, and financially. Especially if you’re not ready and you’re not informed.
There’s so much more to flipping a house than getting a good deal on a property and selling it for more. There are steps you need to take and information you need to learn t be this type of investor.
So, we built this guide to help you get started flipping houses the right way. We’ll walk you through the six steps you need to take to start your real estate business.
1. Create a Business Plan
Flipping houses is a business and with every business, you need a business plan before you do anything else.
Your business plan should give you an idea of your finances and what you want from flipping houses. It’s the framework that gets you from point A to point B.
There are a few important components that you should include:
- Budget and Funding: You need to know your budget. You need a budget for buying your first house and one for renovations. Let’s not forget that there might be costs to advertise or market the house once you’re done with repairs.
You also need to include loans and make sure your plan enables you to repay those loans. There are closing costs and other real estate fees, too. It’s expensive to start up a house flipping business. What’s your expected return on investment (ROI)? There needs to be a profit when you’re flipping a house.
- Your Goals: This is self-explanatory. Your plan has to have specific goals in this investment. How are you going to meet them?
- Project Timeline: You should have a set number for the number of projects you want to take on in a year or two years. You must have an estimate of how long your projects are going to take in your business plan.
These are only a few details you should have in your plan.
A business plan also helps you get a loan from a bank. If you have a detailed plan full of research on the market, it proves your commitment to reaching your goals and traditional lenders will be more willing to lend you money. When you reach your goals, you should be able to repay the loan.
2. Do Your Research on State Laws
Every state has different real estate laws and each county also has its own laws and requirements. Check out your requirements through your state’s Department of Business and Professional Regulations.
It’s important to do your research. You want every detail and fee taken care of.
3. Get Your Real Estate License
Now, a real estate license isn’t necessary for every state. But even if your state doesn’t require it, we recommend it for two big reasons.
First, hiring real estate agents to help you search for houses is pricey. What if you knew the real estate game yourself?
When you take the real estate license test, you learn everything you need to flip houses. You’ll have extensive knowledge that the average house-flipper doesn’t have.
4. Create a Legal Business Identity
There is another step that isn’t a necessity but we recommend it and that’s creating and registering a legal business identity.
This protects you if you’re sued. Your personal finances won’t take a hit. Instead, your business takes the hit. Your best bet is to register as either an LLC business or DBA business.
Once you’ve done that, it’s time to register for tax purposes, both state and federal. You have to apply for an Employer Identification Number or EIN.
5. Open a Business Bank Account
You need a business bank account. If you don’t, you’ll regret it. Keep your business (property flipping) expenses separate from your personal account.
It helps filing taxes so much easier at the end of the year, too.
Apply for a business credit card. When you’re running low on cash or funding, it’s your lifesaver. Always make payments towards your credit card though. This also helps build the credit of your business which opens up more avenues for your house flipping business in the future.
Additionally, you should also check out business insurance to protect you later down the road.
6. Build a Network
As you grow your house flipping business, start building a network. A network helps your business grow and makes flipping houses much easier in the future.
Get to know the real estate agents, landlords, and other house flippers in your area. They can give you invaluable advice when you’re getting started. Agents can give you leads on affordable houses perfect for flipping.
Befriend contractors. If you get to know each other, you’ll trust them enough to hire them to do renovations on your investment property. Or, if you do the work yourself, they might throw a few pointers your way.
The Bottom Line
If you have the money and the credit, getting into house flipping is a fantastic idea. There’s money to be made in this area and a business to grow. So, how do you get started flipping houses? It’s not as hard or as easy as you would think. There’s a lot to think about but none of it is insurmountable. We hope these six steps to creating a house flipping business help you get your foot in the door. Learn and grow as you go.