How To Get Started Flipping Houses In Atlanta
Every year we get clients who call us with interest in investing in the hopes of flipping profits just like they saw on Flip This House or Flip or Flop or whatever other popular show. Unfortunately, those shows have only a smidgen of truth. The truth is that there is often drama but it's rarely playing out like it is on the TV show. Most of the first time investors are going to be investing in Atlanta and attempting to do flips. I'd thought I'd go over How To Get Started Flipping Houses In Atlanta.
Why Do You Want To Flip? What's Your Goal?
I had a person on Facebook ask the other day about investing. That's it, not investing in stocks or investing in real estate, it was just investing. Naturally, everyone posted anything that came to mind from 401K to IRA to Life Insurance to Real Estate. As the Cheshire cat would say, "if you don't know where you're going, anywhere will do." Before diving into real estate investing you should consider your ultimate goal. There are really two main options in real estate investing, doing it for passive income or "active" income.
House Flipping Goal A: Passive Income
One of the best parts of real estate is that you can rent it out. The property value typically grows (over long periods of time) and you receive and income (they call these income properties). Depending on your cash you buy properties (professional investors call them units) and rent them out. You can grow that over time and it's a great wealth builder. Many newer investors don't realize they are getting into property management when they decide on the DIY route on the investment side of things. We recommend you hire a property manager.
Ultimately, if you want to be wealthy and you love real estate then you don't actually flip the property. Instead, you buy low, fix it up to build the value in the property, and then when you sell it's less of a flip and more of an "exit." If you hold this property for longer than a year then your tax ramifications change as well.
House Flipping Goal B: Active Income
When clients wish to flip properties they are getting into active income. It's not just a word for this blog post, but it's really how the government sees it too. Flipping is usually going to result in short term capital gains. It gets taxed at a significantly higher rate than long term gains. Basically, when you flip, you're wanting to buy a home for X and sell it for Y with Z being your profit left over. The best investors in the world that stay in flipping (many get out asap) do so with this main thought, "how can I turn my money over." What they mean is that how often can they take their capital out and use it, make a profit, and do it again and again. Essentially this is the part of real estate that's kind of like a job. Every deal isn't just about how much you can flip the property for but also how quickly you can flip your profit into another deal.
6 Essential Skills To Excel At Flipping.
1. Evaluate The Value Of The Property
Whether you get a broker to help you price it out, hire an appraiser or use automated tools, determining the value of a house or condo when it hits the market is a prerequisite to earnings. You'll never know whether a deal is a good deal or a bad one or what your exit strategy will be if you can't figure out the value. Most newbies balk at hiring people or using a real estate agent, but pros will tell you that it's invaluable in the beginning when you're learning an area.
2. Find The Hot Investment Deals
An investor that can find good deals can make money without having to worry about knowing how to flip. The best investors use a variety of tactics to generate opportunities. "Driving for dollar," ugly yellow-letters, networking with other investors, and digital marketing are all forms of lead generation for investment opportunities. From my conversations with professional investors, their single best source is the relationships they've built. However, keep in mind that for some, they only need 1 deal to make the entire year's worth of marketing worth it.
3. Acquire The Deal
If you want to flip you're going to have to figure out how to buy the home. There is a lot of creativity if you want to wholesale or assign deals but if you want to get your hands dirty as they do on TV, then you'll need a way to get some funds. Newer investors can use hard money loans, home equity loans, and other creative forms of loans. Keep in mind, the reason "cash is king" is because it doesn't lose its job or require an underwriter to get to the closing table. Speed is a commodity and you won't win very many properties if you're trying to do with a loan.
4. Fix The Property
The Property Brothers might as well be the fairy brothers because they don't really exist. Sorry HGTV, but most of the flippers I know use contractors, and very few touch the work themselves. Professional flippers know how the home functions and might even decide to do some work here or there, but in general, they aren't doing even 10% of the rehab. They manage those that do the work. When you see those guys on TV laying tile, they are pretending.
5. Market The Property
Once the property is ready to sell you need to know how to market it. This is where a real estate agent can be handy. If they want this commission on this end of it, then they can often help you find a deal, value the deal, and suggest what needs to be fixed to get to this stage. Think of it as labor on lay-a-away. You get a bunch of work but have to pay the commission on the sale. In an upmarket, you might be able to cut an agent out but I feel that agents are worth their commission because not only do they give you access to the MLS but they often can make the paperwork and scheduling the closing more convenient. In addition, they often will reduce their commission if you do multiple properties with them.
6. Sell, Close and Do It Again
It's not over until you're paid at the closing. You'll have to navigate the inspection process if you sold to a regular home buyer. Once you're paid, you'll want a financial plan for your profits so that you can go back and do it all over again.
Our friends at FitSmallBusiness have a great "How To Make Money Flipping Houses", Guide.
The biggest challenge to Flipping houses in Atlanta
Building a dream team. You can often find a savvy agent, but the contracting crew is what may be challenging. The guide mentioned above says:
If you've ever had work done on your own home, you probably know that finding great, affordable contractors can be harder than finding the abominable snowman. The mediocre contractors can be cheap (or not) but might not be able to get the job done to your satisfaction. The really great contractors are expensive and very busy. Ideally, you want to find a happy medium.
It's the biggest challenge in my mind. On your first flip, we recommend paying for a general contractor and watching what they do and taking great notes. It might be worth it to take fewer profits and learn more about the very first one. As you continue to flip you'll eventually find out that even the best contractors have bad days and you'll be called upon to replace them or be the GC yourself.
Getting started in flipping homes in Atlanta is a daunting, frankly almost full-time task. However, if you have a clear goal and a good team of supporters around you then you can make it work.
Property Flipping Guidelines
FHA Mortgages On “Flips”
Homes that qualify for HUD’s Temporary Flip program (re-sold within 90 days or less) require two appraisals, a home inspection, and documentation on seller improvements Any FHA required repairs mentioned in either appraisal or home inspection reports must be repaired. Properties re-sold between 90 days to 6 months may also require two appraisals and documentation from the seller on improvements–especially if there is a considerable increase between previous and current sales price.
Conventional Mortgages on Property Flips
Properties re-sold within 6 months are considered property flips and require an exception approval to proceed with financing. Documentation on seller improvements will be requested, and two appraisals may also be required. (Essentially the same guidelines, with slightly more flexible guidelines).