Updated: Jun 2, 2020
You've seen it, read about it, or heard about it. The insane profits that house flippers make.
Flipping also appears to be so much fun. How can it not be? Hunting for a house, giving it a makeover, and selling it for a steep profit over and over again, is probably the best job in the world.
Wouldn't you love to quit your job and do this full-time? You've probably fantasised becoming a full-time and financially-free property flipper at least once in your life. Who wouldn't?
The only thing holding you back is fear of the unknown.
The market has ups and downs. In the last 5 years, it appears to have more downs. What if you buy a property that doesn't appreciate? What if the market crashes just after you buy to flip?
Given the investment size in a property, these fears are well-founded.
But your mind keeps going back to the profits that can be made. And the romanticised flipping career that so many property flippers on reality TV shows enjoy.
How do they do it?
You want to know, "how to flip a house for the first time?"
This post will lay it all down for you. It will help you flip a property for the first time with a good chance of doing it profitably.
Table of Contents
1. Flipping Houses for a Living: Can You?
2. How to Get Started Flipping Houses
3. 13 First-Time Flipper Mistakes to Avoid
4. Flipping Houses with No Money
5. The Best Teacher is Experience
Flipping Houses for a Living: Can You?
Some people successfully flip houses for a living. I’ve met them. The returns they can make are insane. I’ve had a taste of it.
You can do this as a serious part-time endeavor or full-time job.
However, you must know that successful flippers, like in any profession, are a small percentage of the total. Not all flippers make exorbitant profits.
Exactly how much does the average house flipper make? Unfortunately, we have no data for this statistic in Malaysia. My guess is between 30% to 40% in gross returns.
According to ATTOM Data Solutions, a property data provider, flippers in the U.S average a gross return of 40.6% or RM282,000 per flip. The returns have been dropping over the years.
This gross return does not include costs associated with the transaction and refurbishment of the house.
The net profit can be a lot lower. Due to this trend, the number of people flipping houses have been declining in many of the markets that ATTOM surveyed.
However, ATTOM also discovered that in some markets home flippers were doubling their money.
How were the creme de la creme doing this?
For the most part, flipping houses is speculative in nature. You’re anticipating that your property price appreciates. If you’re making predictions about the market, you could be gambling. No one builds consistent profits by gambling.
If you want to flip houses for a living, you must manage the speculative element of flipping.
You have to dedicate time. A lot of time.
You need to do research, find good deals, learn how to renovate, and build relationships with contractors, real estate agents, lawyers, bankers, auctioneers, and other successful flippers.
In short, flipping is like having a full time job. If you already have a full time job, the time commitment from flipping can be taxing. If you’re unwilling to or find it difficult to clock in the hours, you shouldn’t be flipping for a living.
What’s that? You’re prepared to clock in the hours? Let’s move on then.
How to Get Started Flipping Houses
Flipping houses is a huge time-investment.
For starters, you’ll find it near-to-impossible to find a good deal. It’s not as simple as visiting an online property portal and finding houses that are below market value the next minute.
You’ll have to build a network of reliable agents who keep an eye out for good deals on your behalf. You’ll need to regularly scan online property portals. You’ll basically have to go through hundreds if not thousands of listings before you find a good deal.
That translates to roughly 1,000 hours (42 full days with no sleep) of looking before the right deal comes along.
At this point, we’re not even considering other tasks like research, sourcing products, renovations, and sales and marketing.
Add it all together and you’re looking at a significant amount of your free time and weekends dedicated to a flipping project.
Still interested? Let’s get to the interesting stuff now.
How to Flip a House for the First Time
Flipping a house is capital intensive. Regardless of whether you acquire financing or not, you’ll need a lot of capital.
Your first goal should be to assess your finances. You want to address the following:
Cash flow requirements
Once you’ve assessed your finances, you’ll know what category of house you can afford to invest in.
The next step would be to choose the right property.
This is followed by renovations. You have to be cost-efficient with your renovation.
Finally, you must have a solid marketing approach to sell the house as fast as possible. Time is a cost and the sooner you can flip, the less your time-cost.
Let’s look at all this in detail now.
#1 Capital Requirements: You’ll Need More Money Than You Think
Before you think about how to start flipping houses, you need to know how much capital you have to raise, and if you can raise it. If you don’t get this right at the start, you’ll fail and could end up in serious financial trouble.
You must have enough cash to purchase the house, cover closing costs, and refurbish the house to above average standards. This requires that you have a deep understanding of the costs involved.
I’ve found that if you can get a mortgage of up to 90% of the value of the house, you’ll need to have at least 25% of the value of the house for the deposit, closing costs, and renovations.
As an example, if you’re buying a house for RM500,000 and can get a 90% mortgage, you’ll need to have about RM125,000 in cash. This is a rule of thumb but can vary by a lot.
Let me illustrate.
You’ll always have to come up with at least 10% of the value of the house, unless you do a mark-up purchase which I strongly discourage.
If you already own 2 houses, you’ll only be eligible for 70% financing on the next house you buy. This would mean you would need 30% excluding closing and renovation costs.
Closing costs are pretty much fixed in Malaysia and amount to roughly 5% of the purchase price. Closing costs include the legal fees, stamp duties, and valuation fees. You can get discounts from the lawyers and valuers if you ask.
Renovation costs are where you have the greatest flexibility. Since the deposit and closing costs are pretty much fixed and renovation is where the greatest variance is, you must develop a remarkable competency in this area.
On your first few flips, go for houses that do not require major renovations to keep your capital expenditure low. Get experts to inspect the house for you before you make a purchase. Things you need to be careful about include roofing, plumbing, electrical wiring, and structural integrity.
You must have a vision of what needs to be done with the house you’re going to buy. Have reliable people who can give you an estimate of what it would cost to implement your vision. This will help you estimate the amount of capital required.
Don’t rush this. Take your time to figure out the capital expenditure. If the deal slips through your fingers because you needed time to figure out the renovations costs, so be it. You can find another house. This is less of a headache than underestimating the costs.
My property investment calculator is a fantastic tool for helping you calculate your costs and cashflow. It will also help you project gross profit. It comes with my book, The Ultimate Guide to Buying Property, which you can download for free.
#2 Getting a Mortgage: Beware
Most people buy a house with a mortgage. And it’s a good thing. The less money you put into an investment property, the higher your potential returns. I’ve demonstrated this with calculations in