I’ve been asked a bunch of times while running The Investor's Edge to help house flippers flip houses: do people really flip houses for a living? The answer is yes; people can absolutely flip houses for a living!
But flipping houses involves a lot more than you think, especially if you want to have it as your full-time job. So let’s dive into what house flipping is (and isn’t), the challenges you’ll face getting starting, and a few tips for overcoming anything that gets in your way.
FLIPPING HOUSES 101
Before talking about how people make a living by flipping houses, I want first to explain what house flipping actually is.
What is flipping? In basic terms, house flipping involves buying and rehabbing houses, and it comes down to the following steps:
- Step 1: By an undervalued home, typically in need of some renovations.
- Step 2: Rehab the home to add value and make it desirable for resale.
- Step 3: Sell the renovated home for a profit.
If you’ve properly analyzed the deal and its associated budget, the cash you receive from the sale will be greater than the sum of A) the purchase price, B) the renovation costs, and C) the holding costs (taxes, utilities, insurance, etc.) you paid during the renovation period.
The difference in these amounts is the house flipping profit from the deal.
FINDING GOOD DEALS: THE KEY TO SUCCESSFULLY FLIPPING HOMES
Can every home for sale be successfully flipped? Absolutely not. The key to house flipping success is finding good deals on the market.
While property values and potential returns will vary market by market, I’ve personally helped clients do hundreds of deals. With all this data, I can comfortably say that the average profit on a successful flip is roughly $40,000.
So, what does this mean for investors looking to flip houses for a living, that is, have this as their only source of income? If you’d like to have an income of $80,000 to $120,000 per year, you will need to complete two to three successful home flips each year, recognizing that this number will vary from market to market.
INCONSISTENT INCOME: HOUSE FLIPPING CHALLENGES
Okay, Ryan, if house flipping is such a good income source, why doesn’t everyone do it?
Fair question, and it leads to one of the inherent challenges of flipping homes for a living – the inconsistent income.
When you work in a salaried or hourly position, you’re going to receive a check every pay period, regardless of what you do. This represents consistent income.
On the other hand, when you’re flipping houses, you don’t actually get paid until you successfully complete a deal, that is, sell a house for more money than you put into it. This means that you may go a while in between paychecks, a reality that makes a lot of people uncomfortable.
But, it’s also a challenge that can be overcome with some basic personal finance tips: establish and follow a household budget while setting aside an emergency fund. This way, you can create a financial situation that adapts to the reality of inconsistent income.
And, while this income inconsistency may seem like a negative of house flipping, I like to view it as a tremendous opportunity. With a salary, you can work harder or longer, but you’re still making the same money.
With house flipping, the more you work, the more money you make! If you want to do three deals a year and call it a day, that’s fine. But if you want to create a rockstar team, the sky’s the limit when it comes to flipping houses.
RISKS OF HOUSE FLIPPING
Related to the inherently inconsistent income of house flipping for a living, another major risk is the potential of not finding another property for a while.
While plenty may be for sale in a given market, they won’t all meet the characteristics of a successful flip. Consequently, an investor may wrap up a deal and not have another one in the pipeline for an extended period of time, a situation that has the knock-on effect of further delaying your next paycheck.
But, as with all risks, savvy investors can mitigate this one with a little work and effort.
MITIGATING FLIPPING RISKS THROUGH MARKETING
As stated above, a risk house flippers – particularly new ones – face is their pipeline drying up. When new investors dive into their first deals, they typically pour 100 percent of their focus into successfully completing that deal, an understandable priority.
But, to actually make a living by flipping houses, you need to look beyond the current deal. That is, you need to develop a marketing strategy that ensures that, while working on one deal, you’re actively searching for and securing the next property.
Once you have this system built, you can smooth the inconsistent income nature of flipping homes, as you ensure that when one deal wraps up (or concurrently with the right team and processes), the next deal begins.
NOTE: A secondary risk of successful marketing is that you may end up with too many homes in your pipeline. But, by wholesaling these excess properties, you can create another quick income source.
House flipping and a full-time job aren’t mutually exclusive. If you keep all of these considerations in mind, making a living flipping houses can very quickly become a reality. But, as with all real estate investing, the most important thing is actually starting, so go out there and find that first deal!
Learn how you can flip properties with us by registering for our next webinar.