This article is part of a larger series on Investing in Real Estate.
TABLE OF CONTENTSBefore taking any house-flipping steps, it’s crucial to lay a strong foundation. This base involves creating a comprehensive business plan encompassing operational setup, team recruitment, property evaluation, securing funds, and the flipping process. To aid in this endeavor, we offer a free template and seven critical steps on how to start a house-flipping business to help you craft a solid strategy and ensure your venture’s success.
If you landed here looking for information on where to find fix-and-flip houses, see our article, How to Find Houses to Flip for Profit in 7 Ways.
Before taking any steps to buying and flipping houses, you need a business plan with specific strategies that pertain to the fix-and-flip business model. A business plan provides a roadmap for how many projects you’ll need to take on, how much profit you need to generate, and funding details that will keep you on track to meet your goals. A clear plan also demonstrates professionalism to lenders and investors when seeking funding.
Complete the following information to get started:
However, in addition to items from a general investment business plan, a strong house-flipping business plan includes detailed information about this unique business model. Make sure your plan also includes the following:
Use our free template below to write your house-flipping plan and start your business on the right foot:
FILE TO DOWNLOAD OR INTEGRATE
FREE House Flipping Business Plan Template
Download as PDF
While many think flipping houses is solely about buying, renovating, and selling, it’s crucial to establish the proper business foundation for long-term success. This step involves choosing the correct legal entity, like an LLC, registering your business, and creating separate bank accounts. Consulting professionals, such as attorneys and accountants, ensure you set up your entity correctly. Proper business operations keep your enterprise organized, efficient, and legally compliant.
Choose the Right Business EntityWhen launching your house-flipping business, selecting the appropriate legal structure and registering it with your state creates a separation between your personal and business assets—safeguarding you in case of business-related liabilities. For instance, if someone gets injured during a demolition, they can sue your company. Still, it creates a hedge from them suing you personally.
Common entity types for investing in real estate include DBA (doing business as), S Corp (subchapter or small business corporation), LLC (limited liability company), and sole proprietorship (the lowest form of legal protection). You must consult with your accountant and attorney as part of your learning how to start a house-flipping business to determine the best fit for your business since this also ties into your financial situation and varies by person.
Register Your Business With the IRS & Obtain PermitsApart from your legal business entity, you must register your business with the Internal Revenue Service (IRS) and get an employee identification number (EIN). An EIN identifies it as a business entity. Make sure to also check with your state and local municipality for what other business licenses and permits you may need, such as building permits, change of use, or special exceptions to zoning ordinances.
Conveniently apply online (Source: U.S. Internal Revenue Service)
Open a Business Bank AccountWith your EIN, you can open a business bank account. Keeping your personal and business money separate is essential to protecting your livelihood and staying legally compliant. Having this account up and running is crucial when starting a flipping business.
For example, you’ll be spending money on gas when looking for properties; all business expenses should come from the same account. You also need to pay your newly hired attorney and accountant. Managing your business account and costs will eliminate auditing from the IRS and complications when your accountant does your taxes.
Analytics in the Baselane dashboard (Source: Baselane)
With Baselane’s analytics and reporting capabilities, gain real-time insights into your property’s performance, such as cash flow, profit and loss (P&L), capital expenditures, carrying expenses, and transfers. Streamline the consolidation of your investment property’s financial data from both your business banking and external accounts, all within a single, user-friendly platform.
Pro tip: Once your business bank account is up and running, consider applying for a business credit card—a valuable tool for acquiring building materials and office supplies without any upfront costs. Some business credit cards offer perks like cash back, which saves on your upfront costs. Some provide a 30-day to 18-month interest-free period, allowing you to manage expenses more effectively.
A common question in house flipping is how to begin with no money. While you’ll need some funds to buy properties, many flippers don’t use cash for the entire process. They typically secure financing through hard money lenders or specialized loans for house flippers.
The two most common ways to get into the flipping homes business are:
If you have a construction or real estate background, you can join investment groups and find investors willing to put up some cash. It’s easy to find local events and groups for investors by searching on Google or Meetup.com.
Real estate investor groups (Source: Meetup)
Remember that the costs to flip a house vary depending on the individual property, its condition, prices of repairs, and the real estate market. Learning how much money you need to flip a house and how much money you can make by flipping houses can be complex. Still, getting the right financing and maximizing your profits is necessary.
Creating a budget and calculating each project is an important part of your house-flipping checklist. Use the free house-flipping calculator to generate your potential profits when shopping and evaluating potential properties.
When starting as a house-flipper, remember the significance of your professional network for your business plan. Flipping houses isn’t a solo venture; you’ll collaborate with experts like lawyers, accountants, real estate agents, and contractors. These professionals provide valuable insights and guidance for successful house flips, making the difference between a lucrative investment and a costly mistake.
Some important house-flipping pros to hire include:
The most trusted way to find experts is through referrals. Suppose other real estate investors or agents in your network succeeded with a professional. In that case, it’s more likely that you’ll also have a smooth experience with them. However, you should still check them out and vet them with an interview or meeting to ensure you choose the right professionals. In the long run, spending time and effort to choose an expert saves you time, money, and stress.
Pro tip: Building and utilizing your network is crucial for success in house flipping. A strong network can connect you with the right professionals, making it easier to find deals and resources. Your network provides valuable insights, market knowledge, and support from experienced individuals who can guide you through the process and help avoid common pitfalls. Additionally, networking can lead to partnerships and opportunities for collaboration, enabling you to scale your house-flipping business effectively.
Before jumping into a purchase, begin by evaluating potential properties to flip. Run a comparative market analysis (CMA) on properties or have a real estate agent run one to determine the value and calculate the return on investment (ROI). Evaluate each property within its neighborhood, location, and real estate market context.
When learning how to find houses to flip, some essential factors to evaluate include:
Did you know? The potential return on investment (ROI) in a house-flipping business can be significant. Investors purchase distressed properties at a lower cost, renovate them to increase their market value, and then sell them at a higher price, resulting in a profit. ROI percentages vary widely, but successful flips can yield returns ranging from 10% to 100% or even more of the initial investment, depending on location and other factors. However, house flipping comes with risks, such as unexpected renovation costs or market fluctuations, so thorough research and proper planning are crucial to maximize ROI and minimize potential losses.
Setting up a successful house-flipping business involves some marketing and real estate branding. While a complex marketing funnel isn’t necessary initially, a well-crafted marketing strategy ensures a steady influx of new projects for your house-flipping business.
Having foundational marketing elements is crucial for projecting professionalism, building your reputation as a reliable home flipper, and marketing your newly renovated properties, especially if you seek funding. Lenders see your professionalism and experience as favorable.
Consider starting your business with these marketing elements:
Logo: A quality logo distinguishes your brand and is useful across future marketing materials.
Business cards: Affordable and handy for networking; consider adding QR codes for website access.
Free business card templates. (Source: Canva)
Website: A simple, one-page site effectively communicates your identity, services, and contact information.
Gmail business email account. (Source: Google Workspace)
Business email: Use your website domain for a professional email address, boosting your image.
Business card templates (Source: Canva)
As you dive into house flipping, consider expanding your marketing with tools like social media and email campaigns. Canva, a versatile and user-friendly design platform, offers templates for various needs, from social media posts to postcards and letterheads. It’s a go-to tool for business owners, making it easy to create diverse marketing materials, both digital and print.
Additionally, you will need to consistently generate potential renovation projects and motivated sellers. Many beginners use listing platforms like Zillow to find houses to flip, which offers versatile search filters to refine property searches based on your chosen criteria.
Homeowners opting to sell without agents often use FSBO.com (For Sale By Owner), Craigslist, or Facebook Marketplace. Foreclosed and bank-owned properties typically appear on websites like Foreclosure.com or the government’s HUD Homes site. These properties are appealing to investors for their potential to offer significant discounts and investment opportunities. Generate leads and learn how to find cheap houses to flip, start with the following resources:
Investors looking for specific types of properties or features Flippers wanting to buy deals directly from homeowners to save on agent fees House flippers looking for deals from preforeclosures and foreclosures Investors searching for foreclosed or bank-owned homes to buy via auction Key FeaturesOnce you have all the right business strategies and structures in place, the bulk of your work as a house flipper comes to buying, renovating, and selling properties. As soon as you close on your property, you’ll have monthly carrying costs that can add to your planned expenses. Therefore, the more efficiently you can complete the flip, the higher your profits.
The process of making money flipping houses goes like this:
Experienced house flippers often handle their property transactions to reduce expenses. You can conveniently pursue a real estate license through online schools like Colibri Real Estate, which offers comprehensive courses, instructor support, e-books, live Q&A sessions, and exam prep tools with a pass guarantee. Colibri Real Estate, an accredited education provider, has assisted countless agents and brokers nationwide in obtaining their licenses, enhancing profit opportunities.
Every beginner inevitably makes mistakes while building their business. For house flippers, there are some definite learning curves, and every new project presents unique challenges. However, the more mistakes you can avoid in the beginning, the more efficiently you’ll be able to build your flipping business and generate a strong ROI.
Some mistakes to avoid when flipping houses include:
Real estate investors use the 70% rule in house flipping to determine the maximum purchase price for a property to ensure a profitable flip. According to this rule, investors should not pay more than 70% of the property’s after-repair value (ARV) minus the estimated repair and carrying costs.
How much money do you need to start flipping houses?The initial capital needed for house flipping varies due to location, property type, and your specific flipping houses business plan. Generally, having access to $20,000 to $50,000 is a good starting point. This budget should encompass property purchase, renovation, carrying costs (like taxes and utilities), and contingencies for surprises. Access to financing options, such as loans or partnerships, can also affect your capital requirements.
How many houses a year can you flip?The number of houses you can reasonably flip in a year depends on various factors, including your experience, team, resources, and local market conditions. On average, experienced house flippers may aim for two to five flips yearly. Beginners may start with one to two flips annually. Scaling beyond these numbers often requires a well-established operation, access to financing, and efficient project management.
Learning how to start a house-flipping business begins with a strong business plan. It also starts by setting up the right legal and financial systems to set yourself up for success as the business grows. Successful home flippers also create a network of professionals to get their flips done properly and implement strategic marketing and lead generation systems. After following this step-by-step guide, your house-flipping business will be ready to generate strong profits.
