Do you want to start a house flipping business? If YES, here is a complete guide to starting a house flipping business with NO money and no experience.
Okay, so we have provided you an in-depth sample house flipping business plan template. We also took it further by analyzing and drafting a sample house flipping marketing plan backed up by actionable guerrilla marketing ideas for house flipping businesses. In this article, we will be considering all the requirements for starting a house flipping business. So put on your entrepreneurial hat and let’s proceed.
Why Start a House Flipping Business?
For those who don’t know, house flipping is a word used to describe the process of buying an existing property under market value, renovating and rehabilitating it and then selling it at market value for a substantial profit. It is important to note that there are a lot of factors in flipping houses for substantial profit, and it is not limited to just resolving liens and tax arrears, build-out costs, marketing costs and carry money or holding costs.
Also the term holding costs is known as the monthly outlays from the time of purchase to the sale, such as the mortgage, taxes, insurance and maintenance.
You should also know that starting this business can be easy but there is a lot to know before jumping in to your first house flip. It is not all about spending thousands of dollars on seminars that promise you will get rich quick, it is better you understand earlier that house flipping is hard work, and you will need a lot of funds for it.
This well-articulated article is designed as a primer for anyone interested in learning how to successfully flip a house for profit. This business is not an easy path to wealth, but it is a good place to start for anybody interested in flipping houses because in the long run you will surly appreciate that you did. Purchasing, rehabbing and selling a property is a lot of work and must not to be taken lightly.
Starting a House Flipping Business With No Money – A Complete Guide
- Industry Overview
The real estate industry is one of the many industries that is a heavy contributor to the rise of the economy of many nations of the world, and house flipping is one of the many sectors in the value chain of this general Industry. House flipping is all about purchasing a property that is put up for sale, renovating the property and then reselling the property with the main aim of making substantial profit.
Indeed the properties are sold at a price that will cover both all the expenses incurred and provide enough profit to compensate for the energy and time invested in the property. Experts in the industry have projected an 11.1 percent job growth for real estate industry between 2012 and 2022.
Facts and analysis in the industry shows that house flippers in the United States of America flipped about 156,862 single-family homes in 2013 alone, and the number of houses that were flipped were up 19 percent in 2015 and 13 percent in 2016. Also, the average gross profit for a completed house flip deal was estimated at about $58,081.
We all must have noticed that the general real estate industry is highly regulated in the United States of America and anyone who wants to become a house flipper or start a real estate agency (company) has to apply and obtain a license so that they can operate in the industry legally without troubles. It is also important to note that as a lawyer, you can take care of real estate deals in some parts of the US and make your commission without operating as a licensed real estate agent.
One of the major risks in the house flipping business is a sudden down turn in the economy. Also, selling properties cannot be a day’s job; it might take two to three years from conception to completion depending on the size of the project and the cash flow. It is important that you have it in mind that some projects can even take much longer than that. Because of the time frame involved in renovating a property from start to finish, loads of unanticipated things could crop up and cause more delays.
Also cost could increase with time due to inflation; there could be currency devaluation and economic challenges. Unforeseen delays from the part of government agencies, litigation and also delays from contractors could lead to substantial cost increase especially if the project is heavily dependent on bank loans. If perhaps during this period there is a change in the supply and demand dynamics of the property sector the project could be affected negatively.
Starting a House Flipping Business – Market Feasibility and Research
- Demographics and Psychographics
When planning to start your house flipping business, you should know that your target market will cuts across people of different class and people from all walks of life. It is always advised that you develop a business concept that will allow you work with highly placed people in the country and at the same time, with lowly placed people who are only interested in putting a roof under their head at an affordable price. Your target market will include;
- Families who are interested in acquiring a home
- Corporate organizations who are interested in acquiring their own property/properties
- Home Owners who are interested in selling off their homes
- Properties Owners who are interested in selling off their properties
- Foreign investors who are interested in owning properties in the United States of America
- The government of the United States of America (Government contracts)
- Managers of public facilities
List of Niche ideas Within the House Flipping Business
It is important to note that the general real estate industry has many different types of investment niches which can also be an investment niche for any prospective entrepreneur willing to leverage the house flipping business. Indeed some might appeal to one type of person and some might appeal to another type of person. But you should know that each investment niche uses most of the same basic principles and fundamentals.
- Single-Family Homes
- Small Apartments
- Large Apartments
Level of Competition in the House Flipping Business
It is important to note that the demand for the general real estate is driven by population growth, personal income, employment rates, interest rates and access to capital. Analysis in the industry shows that profitability of individual companies rests on property values and demand, which are both affected by general economic conditions.
It is also pertinent to note that companies in all sectors of the real estate industry depend on the supply of investment capital. Bigger fishes in the industry have competitive advantages based on their financial resources and broad geographic reach, while smaller companies can compete effectively by focusing on local or regional markets.
List of Well Known House Flipping Firms
- Blackstone – New York, NY
- Invesco RE – Atlanta, GA
- Prudential RE Investors – Madison, NJ
- Goldman Sachs – New York, NY
- Cole RE Investments – Phoenix, AZ
- AREA Property Ptnrs – New York, NY
- JP Morgan – New York, NY
- LaSalle – Chicago, IL
- AEW Capital Mgmt – Boston, MA
- LNR Property Corporation – Miami Beach, FL
- Hines – Houston, TX
- Brookfield Asset Mgmt – Toronto, Canada
- GE Capital – Stamford, CT
- Inland Real Estate Group – Oak Brook, IL
- Morgan Stanley – New York, NY
- TIAA-CREF – New York, NY
- TA Realty – Boston, MA
- American Realty Capital – Jenkintown, PA
- CWCapital – New York, NY
- CPP Investment Board – Toronto, Canada
- RREEF – Santa Ana, CA
- Beacon Capital Partners – Boston, MA
- Clarion Partners – New York, NY
For the purpose of this article, we believe it is very important to note that the use of economic indicators rests solely in the domains of governments, corporations, educational researchers, large institutions and sophisticated investors. It is believed that these entities know the benefits of possessing an awareness of the statistics regarding current economic conditions and likely regional, national and international trends. For those who do not understand, economic indicators provide essential information, which affects customers, tenants, buyers, workers, businesses and investment strategies.
In the industry, small business owners and investors are advised to employ economic indicators in their investment analysis to aid them understand the current economic conditions, forecast future economic possibilities and make better decisions.
Starting your House Flipping Business from Scratch or Buying a Franchise
It may seem unique and relevant to start small and grow big in the real estate general industry, but this may not always be the best option for a house flipping business. It has been proven in the industry that single unit properties and small single family homes are the most attractive to newbie investors, as they usually cost less to purchase and rehabilitate.
But the profit from these properties is often swallowed up by the mortgage, renovation budget and maintenance on the properties. This is why it is believed that buying a franchise is a better option; you can partner with a wealthier individual or get more financing in order to purchase a more profitable property.
Possible Challenges of Starting a House Flipping Business
We all know that housing or in a far better description ‘real estate’ is an entrepreneurial business where almost everyone strives to do their own deals. All these and more makes the industry very interesting and competitive. There are many intelligent professionals out there who are very ready to start out on their own, however starting your own firm is incredibly challenging. The possible challenges you should have at the back of your mind include:
- You should know that timing is often the biggest driver of deal success
- Note that it is quite hard to get comfortable and pull the trigger on the first deal
- In the industry. investors have unlimited investment choices
- The opportunity cost of leaving your job is higher in a hot market
- Unlikely to experience a near-term capital event
- Hard to be patient even though that may be the best course of action
- It is tough to start a house flipping business in a down market
Starting a House Flipping Business With No Money – Legal Aspect
- Best legal entity for a House Flipping business
There are several legal entities available in the house flipping business and there are based on the tax status you are willing to accept – but most businesses in the general real estate industry real estate industry are formed as LLCs. This is because the legal entity gives owners the opportunity to legally separate themselves from liability in order to protect personal property and finances in the event of a catastrophic failure (such as a lawsuit) in the business.
There are just two main requirements when starting an LLC house flipping business, they are filing articles of incorporation with state agencies and maintaining a business of ‘good standing’. Also you should know that when delegating management responsibilities, LLCs has much greater flexibility than either a corporation or partnership. Though corporations are statutorily required to have officers and directors, the LLC can be fairly managed by its owners or third-party managers.
Also in some states in the United States, the imposed increased fees are based on the authorized number of shares, LLCs may pay lower state registration and maintenance fees than corporations. Forming an LLC structure can give you the advantage of the tremendous flexibility in the distribution of profits, as determined by the LLC’s operating agreement.
You should know that Cash flow distributions do not have to be pro rata according to ownership like an S corporation, which gives you the ability to financially reward the “sweat equity” effort of select members through appropriate distributions of available cash flow in your business.
Catchy Business Name ideas for a House Flipping business
- Winter suits
- Housing giants
- Integra estates
- Numeric estate services
- Liberty world
- Tower Magnet
- Pitch mantra
- Apartment Grey
- Four Leaf Clover
- Exquisite housing
- Bumpy Housing services
- Destiny Realty Solutions
- Future estates
- Universal housing
- Wealth contractors
- Target reality
- Sheraton Ltd
- Dream Home Real Estate Service
- Castle Realty
- Affinity Investment Group
The importance of insurance in all phases of our lives cannot be over stretched. Even Long-term real estate property investors will want to have iron-clad insurance policies that include stipulations about what is covered by the insurance and what is the responsibility of the renter. Then short-term investment properties must be covered by short-term insurance policies.
Insurance is something you cannot avoid, but you cannot also lock yourself down into a long-term contract if you are going to offload the property as soon as possible. It is important to say that any type of insurance you choose be aware that there will always be exclusions.
- General business liability insurance
- Investment property insurance
- Real estate finance insurance
- Loss of rental money insurance
- Equipment breakdown
- Umbrella insurance
Intellectual Property Protection
In the business world, no time is too early to start considering intellectual property protection. You should know that keeping a vigilant eye on these assets is a crucial part of the success of your business. New entrants in the business world tend to face the issue of intellectual property protection.
Note that trade name is the legal name of a business entity, which appears on the articles of incorporation or bylaws filed with a secretary of state’s office. It is advisable that you take great time when selecting a trademark. The U.S. Patent and Trademark Office website allows viewers to search for existing trademarks.
A clear search is not a guarantee that the desired name is available. As trademark rights are acquired through use of the mark, companies should consider conducting a comprehensive trademark search in order to uncover not only marks filed with the USPTO but uses of the mark.
Is Professional Certification Needed to Run a House Flipping Business?
- The Certified Commercial Investment Member (CCIM)
- The National Association of REALTORS®
- Accredited Buyer’s Representative® / ABR®
- Accredited Land Consultants (ALCs)
- Certified International Property Specialist / CIPS
- Certified Property Manager® / CPM®
- Certified Real Estate Brokerage Manager / CRB
- Certified Residential Specialist / CRS
- Counsellor of Real Estate™ / CRE™
- Certified Real Estate Team Specialist / C-RETS
List of Legal Documents Needed for a House Flipping Business
- Bargain and Sale Deed
- Contract for Deed
- Grant Deed
- Mortgage Deed
- Quit Claim Deed
- Special Warranty Deed
- Transfer on Death Deed
- Warranty Deed
- Intent to Purchase Real Estate
- Moving Contract
- Property Agreement
- Property Manager Agreement
- Real Estate Easement Agreement
Financing a House Flipping Business
We all must have noticed that the general real estate industry is a hub of wealth where large finance brings back large profits. We also must have noticed that all businesses need finance and the house flipping business is not left out. When looking to finance your house flipping business, you should look at the following attributes to boost your chances:
- You should have a sizable down payment
- You should be a strong borrower
- Always shy away from big banks
- Ask for owners financing
- Think outside the box
Choosing a Suitable Location for your House Flipping Business
For those of us who do not know, one of the most important things you can do is to buy properties where conditions are favourable for renting/selling/lease. For example, most people aren’t going to buy a New York City high-rise or other in-demand trendy apartment buildings, but you can employ similar principles when choosing properties. It is advisable that you focus on buying properties in areas where rental demand is growing faster than supply.
This does include many metropolitan markets, but there is likely to be examples of this anywhere in the U.S. It is also advisable that you look at the demographics of the neighbourhood. It is well known that the 25-34 age groups will increase by 1.1 million over the next three years.
Also since the home-ownership rate among young adults has recently increased from 35.3% to 39.2% just within two years, places with high concentration of this age group are favourable places to own flipping properties.
Starting a House Flipping Business – Technical and Manpower Requirements
When building your house flipping enterprise, we understand how tempting it might be to reduce the number of processes or workforce so that you can be able to keep the lion’s share of the profits for yourself. But have it in mind that it is not advisable to go it alone during the property search on your first couple of go rounds. Have it mind also that no matter how much market research you do, you will not automatically become an expert the first time or two you purchase a flipping property.
Also you have to know that Realtors understand the market within a given geographic area better than you ever could. We advise that you stage your vision and goal towards finding the worst houses in the best neighbourhoods and pimp them up to reap the biggest rewards. You don’t want to get hung with a mediocre property in a neighbourhood that’s on the decline. This may mean sacrificing some of your predicted profit, but it is a valuable learning experience that will help you cut the cord in the future in the industry.
Starting a House Flipping Business With No Money – The Marketing Plan
- Marketing Strategies for a House Flipping Business
Generally, the real estate industry is a numbers game. The more leads you can generate, the better chance you have at landing a potential buyer. However, generating those leads requires a proven marketing strategy. You should have it in mind that everyone will experience different results with their respective marketing campaign in the industry.
It is more like saying that two different people in the same market could be doing the same exact thing and get very different results. And two different individuals, in two different markets can get similar results. That is how the house flipping sector works. Marketing strategies may include;
- Apparel/Human Advertising
- Direct Mail
- Cold Calling
- Bandit Signs
- Newspaper/Yellow Page Ads
Strategies to Boost your House flipping Business Brand Awareness and Creating a cooperate identity
For those who do not understand, brand awareness for real estate means that your local home buyers and sellers know who you are. It simply means that you are on top of their mind when they think of an agent. You should know that people start their home search online, which is why building your brand awareness with digital advertising is the best bang for your house flipping business.
You should know that a lot of companies have to spend serious time, money and effort creating a brand — a corporate ‘personality’ that conveys its essence. As a house flipping business, you have a particular advantage with brand awareness. Here are five secret weapons you already have to help you build brand awareness for your house flipping business:
- Have it in mind that you can be the face of your brand
- You need to be a unique storyteller
- Your business is a service
- Mould yourself into an expert
- You know where your customers are