Flip a House and Grow Your Income: A guide for first timers

There are instances when people need finances at the very moment, reasons why they look for opportunities that will allow them to earn a huge sum of money without having to wait so long.

Ways to earn a great deal of income over a short period of time are plenty. You can resell products online, including e-books, consumable food, or tech products. You may get started on Amazon or Etsy. Tutoring and personal training are highly recommended opportunities. Refunding bank and credit card fees, overdraft, ATM and monthly account fees, will provide you with revenue right now today.

But one of these quick earn schemes, and very effective, is flipping a house. You might have heard of this in your conversations with other real estate professionals, but in passing. In this step-by-step guide, we take you to the in-depth information on how flipping a house can grow your income.

1. How long does it take to flip a house?

Flipping a house is one of the proven ways listed on popular business web news and magazine source, Entrepreneur.com. It is defined as the event when the real estate investor invests and purchases homes, and sells them for a profit. For these houses to be considered house flipping, it should have the intention of having this quickly reselling. Take note that the time between the deal and the sale may range from a few months to about a year.

House flipping presents two different kinds. One of these happens when the investor purchases a property that has the potential to raise in value, following repairs and renovations. After completion, the investors then makes money from selling the property at a higher price than what they bought it with.

The other is when investors purchase the property amid rising values. No renovations happen, and after holding these properties for a couple of months, they are re-sold at higher prices, and then make a profit from it.

The trend of flipping houses is rising anywhere in the country as of July 2020. Last year, there were more than 240,000 houses flipped, contributing to more than six percent of home sales, according to real estate specialists. It has been said that this is the highest percentage of house flips in a span of a decade.

However, how long does it take to flip a house? This is among the most frequently asked questions when knowing how to flip a house for the first time. From close-to-close, this shall take you around four to six months.

2. How much money do you need to flip a house?

It can take you to spend several hundreds to thousands of dollars, and note, there will usually be no money upfront from your own at all, when you flip a house. Everything will be considered to be successful in their venture — the location, your credit rating, the condition of the property, and more.

Is there a lot of money to gain? Yes. Unfortunately, spending often comes first in flipping houses. You have the initial starting cost of the costs of the property upfront. Also referred to as the acquisition cost, this refers to the biggest cost of the house flip that can give you the overview on the profits you can earn.

You can use this renowned formula to determine the purchase price. First, reduce the approximate post-repair value or ARV by 30 percent. Then, deduct the estimated renovation costs from this number.

As an example, if properties in the area sell for $200,000, and renovations cost you $40,000, then the purchase price can be at $100,000. After these, you will also have to consider costs of taxes and renovations.

3. Can you use my FHA loan to flip a house?

FHA loans defined refer to mortgages issued by lenders certified by the Federal Housing Administration, and also insured by this office. Perfect loans for low- to moderate-income borrowers, these loans have minimum down payment requirements without affecting your credit scores. However, a credit score of at least 580 is required.

Real estate investors are seeing the opportunity to slash prices when they use FHA loans, possibly, when flipping a house. Can you use the FHA loan though?

The answer is in the single family loan guidelines from the FHA, in HUD 4000.1. Reading over at page 146, it is stated, “A property that is being resold 90 days or fewer following the sellers date of acquisition is not eligible for an FHA-insured mortgage.” 

Does this mean that the owner who used these loans to purchase the house will have restrictions on the selling? No, it doesn’t mean so. The only restrictions are on how they can utilize the FHA mortgage.

There are exceptions, on the other hand. Inherited homes are not subject to the measure, as well as flipped homes from an REO transaction’s HUD sale for instance. These transactions are for properties that were in foreclosure with mortgages from FHA and now managed by HUD.

FHA might be tough on defining what houses are considered in flipping. Since house flipping pertains to the purchase and resale of the house over a short period of time, there are further rules that apply.

On page 145, it says, “The eligibility of a Property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller has acquired title to the Property and the date of execution of the sales contract that will result in the FHA-insured Mortgage.”

Moreover, the ruling also defines the acquisition date as “the date the seller acquired legal ownership of that Property. FHA defines the resale date as the date of execution of the sales contract by all parties intending to finance the Property with an FHA-insured Mortgage.”

4. How to flip a house with no money down?

So, you really want to flip a property, but got no money down. Is this possible?

Flipping a house offers and opens up several options, opportunities, and possibilities. It can give you with the cash you need today faster than any other way to sell. It is, indeed, very possible to flip a house with no money down. Here are the tips and sources.

a) Private investors and money lenders 

First, you can do this with private money lenders. These are individuals who have the funds, and can invest in properties. They are willing to lend at predetermined interest rates for those with no funds yet to flip houses.

The money to be lent may include the repairs and other costs as long as you are able to find the right private money lender. Trust, discussions, and comfort levels will determine the amount of money s/he will agree to lending you.

b) Wholesaling

The second great alternative is wholesaling. How does it happen? Wholesaling houses is one of the excellent ventures for these investors who already are into the house flip business for years.

Remember that for property wholesaling to work according to your preferences and tastes, you must have a strong network of real estate investors on the lookout for the most lucrative deals. Thus, you cannot simply purchase houses and wait without taking action. The final sale price is huge, and you can make as much as 10 percent from this range.

The wholesale of these properties gives you the opportunity to purchase houses without having to assume the title. Therefore, there are assignments fees since you will mostly act as the intermediary.

c) Hard money lenders

Third, you may take the road to borrow the money for house flipping from hard money lenders. Loans in the category of hard money refer to short-term loans utilized to fund these kinds of projects.

These approaches focus on the potential of the project, as well as the experience of the borrower rehabbing houses more than the credit from the borrowers. Should you own a property with equities, you can be eligible for hard money loans.

The action plan: Start asking your lender if they will include the closing cost in the deal, and cross collateralized leading to the down payment. These lenders may require about 25 percent down payment to avail of the equity in other properties, when this situation calls.

5. How much tax will I pay if I flip a house?

House flippers are required to pay the usual income taxes on net profiles in a given calendar year. These comprise the state income tax, self-employment tax, and federal income tax, among others.

If you think that the tax payable will depend on your income tax rate and bracket, you are right. For federal income taxes, these are paid in accordance with your Federal Income Tax Brackets Meanwhile, self-employment taxes are paid at 15.3 percent of the net profit, for a maximum of $118,500. Lastly, state income taxes are paid from the State Income Tax Brackets.

The category of houses for flipping are inventory, and the project costs are categorized as cost of goods sold. Until these goods are moved along the market and sold, you are not required to pay income taxes on these goods. Though you are able to purchase the property this year, the income taxes payable come in as soon as the property is sold.

First time flipping a house? There are guidelines to follow, and with a step-by-step procedure, you can always succeed in this investment.

• Step 1: Research a range of property markets
• Step 2: Draft a budget and business plan
• Step 3: Organize your finances
• Step 4: Start communicating with potential contractors
• Step 5: Look for the house to flip
• Step 6: Purchase
• Step 7: Have the house renovated
• Step 8: Sell the real estate property

A point that specialists will always re-iterate is that, flipping houses is more of a team effort than individual work. Without keeping up and managing your networks well, you will have lesser chances to earn new profits.

Keep an open mind. Learn from the experts and listen to them. Being teachable is one of the finest personalities of networkers that you should imbibe.

Concluding statements

How to flip a house for the first time may sound easy and simple. However, for beginners, there are a lot more things to learn. You can make or break your house flips, depending on how you adhere to situations.

However, when done in the most accurate way, house flips can be a fantastic investment. Over a short period of time, you can renovate the property to add value, then sell it more than the price you have bought the house.

House flips though can be unsuccessful if done in the most disorganized way. The house flipping mistakes you hear about are real, where the best deals turn into bad ones. For instance, when buyers see roofing leaks, foundation crack and more. Yet, house flipping is a profitable way to earn cash whenever you need it.

Deciding to flip your house should teach you the principle of avoiding losing money. Focus on the goals: making a fruitful investment and earning the rewards.