My name is Justin Williams, and over the past 9 years, I’ve flipped more than 500 houses. There are a lot of misconceptions out there about what I do. And I’ve seen many new and inexperienced investors buy into these “myths” and lose thousands of dollars.
I don’t want you to make the same mistake. Let’s clear up a few falsehoods about house flipping!
MYTH 1: To find a house to flip, look for a run-down house for sale in your area and buy it.
Wrong. This approach usually won’t work… and you could end up losing money if you do it this way.
The houses that work best for flipping aren’t usually going to be “listed for sale” anywhere. The reason for this is simple…
If a house is listed for sale with a real estate agent, even if it’s a fixer-upper being sold as-is, it’s most likely priced based on its retail value minus the cost of any needed repairs… which means flipping it won’t make you any money.
So how can you find houses to flip?
The answer is to go directly to the sellers themselves. Cut out the middle man. Don’t wait for a house to be listed “for sale” on the MLS (Multiple Listing Service). Instead, look for off-market properties that won’t sell to conventional buyers because they need too much work to make them sellable or because they won’t qualify for traditional financing. Look for homeowners who need to sell quickly and don’t have time to fix up the house or go through the conventional sales process. Look for situations where there’s “distress” either with the property or the owner, and position yourself as the solution to that distress.
Your first and most important job as a house flipper is to sniff out these houses and get them “under contract,” meaning you sign a contract to purchase the property from the seller. This allows you to negotiate directly with the seller to get the price you need in order to make the deal work.
I could write a book on how to find these motivated sellers and how to put these deals together… but for now, just recognize that you usually won’t find houses that will make for good flips on the MLS. You’ll need to dig deeper.
MYTH 2: You need to spend tens of thousands of dollars of your own money to flip a house.
Not true. This is probably the biggest misconception about house flipping.
You don’t need to have thousands of dollars saved up before you flip a house. You don’t need to spend any of your own money at all.
Here are just 5 ways to fund a flip…
Private Lenders: A private money lender is someone who has money and wants to invest it for a better return than what they’re currently getting. You’d be amazed how many people have money in risky stock market investments or low-yield savings accounts, mutual funds, or CDs. House flipping can provide a much higher return than what these investors are currently making.
Hard Money: Hard money is a lot like private money. You’ll need to qualify to get a hard money loan, but this is usually much easier than qualifying for a bank loan, because hard money lenders tend to look more closely at the nature of the deal you’re trying to fund rather than you, the borrower.
Joint Venture or Equity Split: If you know someone who has capital and wants to be “in on the action,” but they don’t have the time or the know-how to do the leg work and oversee the project, offer to partner with them. They put up the capital, and you’re responsible for finding the house, rehabbing it, and selling it. After the sale, you split the profit.
Seller Financing: With seller financing, the seller is essentially selling you the house on a payment plan. You’ll work with the seller to come up with terms for the purchase of the home, and the seller “carries the note,” meaning you’ll make payments directly to the seller.
Wholesaling: When you wholesale a property, what you’re doing is getting the property under contract, and then selling the rights to that contract to another investor for a fee. You can make a nice profit just for finding a property and “flipping” it to another investor.
MYTH 3: You should do all the repairs yourself to save money.
Wrong. If you try to do it all yourself, you’ll probably end up paying more to fix the place than if you’d hired a professional… and this is often true even if you’re a contractor by trade.
Why does it cost more to do it yourself? Because time is money.
When you’re flipping a house, the faster you can fix it and re-sell it, the more money you’ll make. Holding costs and financing costs can eat up your profit in just a few short months if you’re not careful.
You don’t need to do all the repair work yourself. You don’t even need to know how to change a lightbulb. Hire a general contractor to handle the rehab project from start to finish, get it done fast, and move on to your next flip.
MYTH 4: House flipping is risky, it only works in certain markets, it’s like gambling, you can’t predict what will happen, and you can lose everything.
Alright, I admit I lumped a lot of things together here for this last one… but this is important.
Everything I just mentioned is all part of the same misconception… the idea that flipping houses is a risky gamble that depends entirely on things outside your control, like the real estate market. This scares a lot of people away from house flipping.
I have some good news for you.
Like any investment, house flipping does involve some risk. But there are specific things you can do to mitigate and even eliminate the risk of losing money when flipping houses.
Learn the fundamentals. Get good at analyzing deals (this isn’t hard… you just need to know the right way to do it). And connect with a mentor or someone who can show you the pitfalls to watch out for and be there to answer any questions you have. But don’t let fear or uncertainty keep you from diving in!
If you’d like some help getting started, I’ve put together a free, 30-minute training video exclusively for readers of Early to Rise that will walk you through the house flipping process from start to finish. If you’re serious about flipping houses but you’re not sure how to begin, check this out… click here to watch the video.