When I first started flipping houses, I learned as I went. In the mid-2000s, it was the heyday of modern flipping, and the national real estate market was so hot that it was easy to find a niche—and it was also easy enough to recover from my mistakes. After all, it was easy to shrug off a suboptimal deal with a narrow profit margin or a significant cost overrun in such a rapidly rising market. I’d just find another home to flip from the ocean of eligible properties, and move on, building my wisdom the hard way.
Today, the basic idea is the same. The biggest difference is that there’s a lot more people getting into flipping than before, which means there’s more intense competition facing newcomers. Thankfully, there’s also a lot more in the way of educational programs for house flipping than there were before, and it’s not too hard to learn the house flipping training basics.
But, you’ll need to have a feeling for the flipping process from start to finish before you can fully dive into your education with a training program or self-directed study. Read along, and I’ll walk you through the basic protocol so that you’ll be prepared for whatever you choose to do next.
Picking Your Market
Identifying the market where you plan to flip houses should be the first thing you do.
Generally, it’s advisable to live somewhere within driving distance of the area you’ll be working in so that you can gather information about properties that might not be easily available online or via public records requests. Beyond that, you should get started by investing in an area where there are properties for sale that are within your means to purchase with the help of the financing you have access to.
In terms of the competitive characteristics of your first flipping market, aim for somewhere that isn’t too crowded with other investors. Suppose you’re considering starting somewhere like New York. In that case, you’ll probably need to be looking upstate rather than the New York City metro area, as the capital is crowded there, and it’ll be hard to get your foot in the door.
With enough experience, I fully believe that it’s possible to compete in any market, but when you’re just starting out, facing a lot of competition can make it challenging to get off the ground. So, the hottest housing markets might not be the best place to start, even if they’re convenient to get to.
Without leads for houses to flip, you won’t be doing much business, so finding high-quality leads is one of the most important activities that you’ll need to become good at during your house flipping training basics.
Likewise, it’s not sufficient to simply find a lead if you can’t replicate the process to produce a regular flow. The more leads you have to choose from, the pickier you’ll be able to be when it comes to filtering and picking the most profitable opportunities to advance.
Cultivate Your Sources
Because you’ll need so many leads, it pays to have more than one source.
In particular, investors should consider finding leads via:
- Foreclosure listings
- MLS listings
- Direct outreach to homeowners
- Marketing campaigns
- Your investor network
Some of these sources, like MLS listings and marketing campaigns, will provide you with inbound leads that are there for you to peruse, and others, like those from your investor network, will require work on your part to gather.
It would be best if you had a mix of both types of sources to ensure that you’ll never be short on options.
Sifting for Prospects
It isn’t enough to just have a handful of leads.
You’ll need to have a system for judging which leads would be feasible and profitable enough to be worth flipping, and building such a system is one of the goals of learning the house flipping training basics.
Every investor approaches this process slightly differently. For me, it’s a matter of crunching the numbers to find the opportunities where the purchase price of the home is significantly lower than the intrinsic value of the property or the resale value that I think I can get after making renovations.
The amount of work it takes to advance leads into prospects can vary a lot depending on where you found the lead. If someone in your network reaches out to you to let you know about a flipping opportunity, you might only need a few minutes to confirm key details before preparing to move forward.
On the other hand, you should expect to spend a fair amount of time pinning down the valuation of a home that you find via a foreclosure listing, as there are likely legal issues that you’ll need to understand before deciding if the flip would be worthwhile.
Budgeting and Planning
After you’ve decided to advance one of your prospects, it’s time to budget for the updates you plan to make and plan for the profit margin you think you can get from a successful flip.
When it comes to budgeting, you should be looking for the improvements you can make to the home that cost the least but add the most to the resale value.
It would help if you also understood that there is likely a point in diminishing returns regarding the amount of additional money you invest into the home and the amount of additional value you can recoup from the sale. And, the more money you plan to put into repairs and updates, the longer it’ll likely take to complete. Of course, you’ll also need to tabulate how much money you can actually mobilize with the help of financing, which I’ll get into a bit later.
Don’t forget that your time is a vital resource that needs to be budgeted. Draw up a timeline for the renovation process and estimate how long it’ll take the house to sell once it’s back on the market by looking at the prior sales in the area for similar properties.
As always, keep your eye on the bottom line, and try to adjust your plans to maintain a gross profit margin of at least 35% once everything is said and done. Likewise, try to leave yourself with some wiggle room in the margin that you target to account for unexpected issues which require more spending to fix.
When it comes to estimating your net profit margin, you’ll need to include the cost of financing, which can be pretty considerable. Therefore, it behooves you to find funding sources as low-cost as possible.
With a prospect firmly in hand and a budget drawn up, your next step will be to organize the resources you need to purchase, repair, and flip the property profitably. Financing the purchase of the home and the renovations is the stepping stone you’ll need to start tying everything together.
Without a complete walk through of the financing process, any good house flipping training basics course would be incomplete. Getting financing is critical to building your business, especially if you don’t have enough money saved up to make a down payment or perform renovations on a house you would like to flip.
With financing, you’ll get the leverage you need to close deals in exchange for an interest fee. Therefore, appreciating how much different sources of funding cost in terms of the interest rate is instrumental in making profitable investments.
Using the Right Funding Source
There are a few options available for funding the purchases of homes to flip, and knowing which to pick has a significant impact on your profit margin. Specifically, house flippers can get deal funding via;
- Other investors (when wholesaling)
- Personal or business credit lines
- Fix and flip loans
- Hard money loans
Of these options, hard money loans, and fix and flip loans are the most common and versatile.
Hard money loans are desirable for investors because they let lenders hold a home’s equity as collateral in exchange for capital. That means you’ll be able to borrow a large sum, use it to purchase a property, and then pay back your lender over time as your investment pays off in the form of rent or a sale after renovations. So, what’s the catch? If you fail to make your payments towards the loan, the lender is entitled to seize the property’s equity held in collateral.
The other catch is that hard money lenders don’t have as many protections for borrowers as many other different types of credit, so it’s possible to get hit with burdensome or predatory terms of repayment.
Working With the Right Lenders
Because of the risks involved with getting a hard money loan, it pays to build a good relationship with a reputable lender from the get-go. If you’re short on ideas about which hard money lenders are considered respectable, have no fear.
Here are a few popular lenders that I’ve had success working with in the past:
- Finance of America
- RCN Capital
- Residential Capital Partners
- American Heritage Lending
- Flatiron Realty
All five of these lenders offer competitive interest rates and typical approval times of less than a week. You’ll be able to raise as little as $50,000 with some of them, and many of them are capable of financing deals with price tags upwards of $1,000,000, so their flexibility is a significant advantage.
Similarly, while the precise term of the financing may vary in duration from 6 to 18 months, there won’t be any unpleasant surprises when it comes time to start repayment. And, with most of these lenders, you won’t need a down payment for more than 15% of a home’s purchase price, unless you want to be. Furthermore, most of them can help you finance the cost of renovations, which is key.
But, many of these hard money lenders only operate in a few areas, and it can be hard to figure out which ones serve your zone. So, especially if you plan on investing in several different states, working with a national lender can save a lot of frustration.
In particular, LendingHome’s nationwide reach and favorable financing terms make it a favorite of many real estate investors, so they’re a good first stop if you’re still not sure which hard money lender is the best fit for your needs.
Making the Deal
Once you know what financing to use and you’ve budgeted for all of your expenses, you’ll be ready to move forward with the deal. Making your first deal will be a major milestone in your investor education, and in general, it’ll go a lot smoother if you have a mentor to help you out.
The exact steps will vary depending on where you found the lead and what type of property you’re going to flip, but in general, you’ll:
- Get a pre-approval from your financing source
- Put in a competitive offer for the property
- Negotiate with the seller about the price (if applicable)
- Send a home inspector to the property
- Alert your financing source and the seller that you intend to move forward
- Sign the closing paperwork
Last but not least, don’t forget to tell your contracting staff to standby for making the renovations.
Once you become more experienced, it’ll become easier to get all of your ducks in a row at the right time, so don’t be too hard on yourself if there are a few snags the first time. Still, with the right preparation and training, your first flip could be very profitable.
Where to Get House Flipping Training
Now that you’re up to speed regarding the house flipping training basics, it’s time to figure out how you will advance your education further to learn about the (slightly) more technical details of the process.
To serve this goal, it’s helpful to take a training course. Let’s take a look at a comparison of a few of the popular training programs.
|Rich Dad Education||
|Other online programs via Udemy or similar platforms||
Of course, these are just a few of the options out there. You should plan to supplement your formal flipping training with reading books, watching videos online, talking with more experienced investors, and working with a mentor.
Comprehensive and Hands-On Training Is Best
The one ingredient that’s absolutely essential to learn house flipping training basics is the experience in the field. There’s no substitute for scanning the market and making deals yourself, with the help of someone that can guide you through the process. If your training doesn’t involve dry runs and walkthroughs of every piece of the flipping protocol, you won’t be fully prepared to make profitable deals when you’re released into the wild.
On that note, it’s also extremely helpful to be a part of a training program where you can get direct assistance with things like accessing financing and performing valuations of properties after your initial education is done. Maintaining a strong relationship with your program—and thereby massively expanding your investor network—will be much easier if there are resources on tap to put towards the growth of your business.
With HomeVestors, you won’t need to worry about exploitative pricing for classes or low-quality course materials. When you become an independently owned and operated HomeVestors® franchisee, you’ll undergo one of the most comprehensive and true-to-life house flipping training regimens that exist. Then, once you’ve finished your training, you’ll get access to critical fuel for your business’ growth in the form of a hard money financing portal, sophisticated proprietary valuation software, and the We Buy Ugly Houses® national marketing campaign for generating quality leads.
You’ll also become a member of one of the nation’s most formidable investor networks, enabling you to coordinate and expand your operations faster than you would otherwise. For a new real estate investor just learning about house flipping training basics, there’s no better way to jump-start your career than becoming a HomeVestors franchisee.
If you’re considering starting a real estate investing business, and want to know more about house flipping training basics—request information about becoming a franchisee today.
Each franchise office is independently owned and operated.