Flipping houses can be a viable way to build wealth and achieve financial freedom. But the traditional fix-and-flip strategy requires major investments of both time and money.
Let’s take a closer look at flipping houses. We’ll explain why investing in house flips is so lucrative. And we’ll give you some tips for minimizing the risks while maximizing the returns!
Flipping Houses for Beginners
Reality TV glorifies flipping houses as a fool-proof real estate investing opportunity. And investors are responding!
In the first quarter of 2024, house flips accounted for 8.7% of all single-family residential sales in the US, and this figure is trending up.
What is House Flipping?
House flipping is when you, the investor, purchase a property, hold it for a short time (traditionally renovating the property during this time to force appreciation), and then sell it for a profit.
There are three keys to successful house flipping:
1. Buy low and sell high.
2. Make improvements that add value.
3. Get in and out of the investment quickly.
Key Benefits of Flipping Houses
Flipping houses offers several benefits, including:
- High potential returns. If done correctly, flipping houses can offer significant profits in a short time frame.
- Fast turnaround. Unlike traditional buy-and-hold real estate, flipping can provide quick returns, often within months.
- Tax advantages: Certain tax benefits, like deductions for repairs, may help offset some of the costs involved.
Potential Risks of Flipping Houses
Watch out for the following risks when flipping:
- Lower-than-expected resale values. It can be difficult to accurately predict the ARV (After Repair Value) in your calculations. Market fluctuations can also impact the resale values.
- Higher-than-expected expenses. It’s easy to underestimate the cost of labor and materials. You might also forget about some of the costs of purchasing, holding, and selling, like closing costs, property taxes, and insurance premiums.
- Legal, zoning, or permitting issues. Unexpected problems with local regulations can cause expensive delays or result in last-minute changes to the plans.
- Difficulty selling. If the final product isn’t in high demand, it can be hard to find a buyer.
How to Start Flipping Houses
It’s impossible to start flipping houses successfully without a plan. That's where Gatsby Investmentmakes things easier for first-time investors. We have been flipping single-family homes in Los Angeles since 2016. We focus on properties around the median $1 million mark. These properties are in high demand because of the wide pool of buyers who can qualify for financing at this price point. Our team also keeps time frames between 6 and 12 months to get investors quick returns.
Locate an Investment Property
It’s general knowledge that you should buy the worst house on the best street to make money in real estate. In Los Angeles, we look for homes under $1 Million on a street where other homes have sold for much higher. Our target properties might be old, damaged, or in financial distress, so we can buy them at a discount.
Our team is selective and skilled at scouting critical locations that allow for faster permits.
Our experts identify a property's transformational potential before initiating a purchase. We understand that every house is unique. Therefore, we look for ways to add the most value based on the property's individual needs. That could mean adding square footage, building an ADU (Accessory Dwelling Unit), or transforming the home's hardscaping, landscaping, and layout. This process also involves our experts analyzing the estimated cost for construction compared to the anticipated sales price to ensure profitability.
Submit an Offer and Complete the Purchase
After raising the entire investment amount, Gatsby Investment purchases the property. We create custom designs by working with award-winning architects, such as The Landry Design Group. For over 30 years, they've been creating world-class house designs featuring innovative architecture and uncompromising quality. After the architects complete the design phase, we can apply for the necessary building permits.
Create a Schedule for the Contractors
Every house goes through exterior and interior renovations. Because we work with a large construction company, we can delegate every worker to various areas of the build simultaneously. That means we can complete projects quickly.
Sell the Property
We work with real estate sales experts to establish a pricing strategy and marketing plan designed to maximize return potential.
House Flipping Investment FAQs
What percentage of house flips fail and why?
While there isn’t great current data on this, one analysis from RealtyTrac found that 12% of property flips break even or sell for less than their expenses. There are two common causes for failures: 1) underestimating expenses and 2) overestimating the ability to sell and the final sales price.
How much can you make on a house flip?
A recent study from ATTOM Data Solutions found that the average American flip returned a gross profit of 30.2%. In terms of dollars, the average American flip returned a gross profit of 72,375.
Can you flip houses for a living?
Yes, but house flipping for a living isn't for the faint of heart. If you were going it alone, you'd need significant experience, and you’d have to be prepared for long hours of hands-on work and project management. You'd also need exceptional people skills, a thorough knowledge of construction and finance, and a knack for negotiation.
Start Investing in House Flipping with Gatsby Investment
If you’re interested in flipping houses, but you’re not confident enough in your current knowledge to flip a house yourself, Gatsby can help.
You can join in one of our house-flipping opportunities as a limited partner. We pool money from multiple investors to keep minimum investments low. Accredited investors can start with Gatsby Investment for as little as $10,000, depending on the project.
Gatsby handles the entire process from beginning to end. When flipping houses, we manage the entire process from start to finish, including:
- Raising money from investors
- Vetting potential deals
- Buying a home with transformation potential
- Adding as much value to the home as possible
- Selling the house for as much as possible
- Disbursing money back to the investors
With our long track record of profitable returns, you can invest with confidence. Start investing in house flips more efficiently today!