The other day, Tarek and I were talking about how we got started in our business. If you’ve watched our show on HGTV, Flip or Flop, you know that flipping houses is a really rewarding business, and you’ve probably thought something like, “I’d love to do that…but how do you get started?”
I realized, as we were talking, that a lot of people really don’t know how to got started flipping houses. In fact, a lot of people think that you have to save up a lot of money or that you have to know everything there is to know about real estate. Well, you don’t have to be a real estate guru or independently wealthy to be a successful flipper. Believe me, we didn’t start out with a lot of spare money to spend on real estate investments, and you don’t have to, either.
Finding the Money
The most important aspect is how you’re going to fund your first investment property. Like I said earlier, you don’t have to have any of your own money saved up to start flipping. You just need to find an investor to back your efforts. You put in the “sweat equity”. They fund the deal, and you have a few great options for this.
First, you can partner with an investor with the agreement that they’ll put the investment money in, and you’ll do all of the legwork, including finding the property, fixing it up, and flipping it. Then the two of you will split the profits. In this case, they put in the money, you put in the time, and you both profit.
You can also choose to go with a hard money lender who will charge a fairly high interest rate with “points” added on top. If you take out a loan for $100,000 with a 15% interest rate and 4 points ($4,000), over the first year you’ll accrue $15,000 in interest plus $4000. $19,000 is a pretty good chunk of change, but if you can get the house fixed and flipped in six months, you’ll only pay $7,500 in interest, and your total payment on your loan will be $11,500.
Depending on how much you increased the value of the house and how much you were able to sell it for, you could still walk away with a good profit margin without spending a dime of your own money. Some people prefer finding investment partners; others like to rely on flipping fast and making their money back before too much interest can kick in. Both methods can work really well, depending on your preferences, your needs, and your market.
Be Persistent and Consistent!
Other than finding the funding, the key to success is persistence and consistency. Tarek and I are always, always, always on the lookout for leads on potentially profitable properties. We’ve always got our real estate marketing out there working for us, we’re checking listings, driving through neighborhoods, researching court and property records, and finding out as much as we can before we head to auction.
Some months we find so many leads we almost can’t keep up with them all. Other months, it seems like there’s hardly anything going up for sale or auction at all. The more persistent and consistent we are with our research and with keeping up with everything that needs to be done on each of our properties as we fix and flip them, the better we do.
And that applies to finding funding and all other aspects of the business, too. The more you stick to it and stay engaged with your goal, the quicker you’ll learn the basics and nuances of how to get started flipping houses. Before you know it, you’ll be an old pro!