How To Start A House Flipping Business: Your Step-By-Step Guide
Are you wanting to start a house flipping business with little to no money? It's possible! Read our guide to find out how.
You may be wondering how to start a house flipping business after watching a DIY HGTV show and thinking, “Hey, I could do that.”
Running a house flipping business may be the right choice for you if you’re a fan of hands-on work collaborative work. But as with all businesses, there are a handful of things you ought to know before taking the leap into your first project.
Read on to learn more about how to start a house flipping business, the steps you should take, and the factors to consider as you get your business up and running.
Table of Contents
- Why Start A House Flipping Business?
- How Much Does It Cost To Start A House Flipping Business?
- 8 Steps To Starting Your Own House Flipping Business
- Is Now A Good Time To Start A House Flipping Business?
- Where Are The Best Places To Flip Houses?
- Are You Ready To Start A House Flipping Business?
- House Flipping Business FAQs
Why Start A House Flipping Business?
With the right access to capital, flipping houses can be quite profitable. Houses come with big price tags, meaning your return on the investment can be significant — sometimes upwards of tens of thousands of dollars.
The kinds of homes that are usually purchased are:
- Homes that need extensive repairs
- Outdated homes in up-and-coming neighborhoods
- Foreclosed homes
If you already have experience in the housing industry as a real estate agent or contractor, then you know what makes a home desirable for buyers, so you can put those skills to work for your house flipping business.
How Much Does It Cost To Start A House Flipping Business?
It’s 2023, and if you’re like most people, the thought of buying a home right for any purpose now likely seems daunting. Maybe you’re wondering how to start a house flipping business with no money.
Remember — this is a business venture. And as a business venture, you will have a network of support (and customers!) waiting for you to bring your services to the market. It is possible to get startup funding, which we’ll discuss in more detail below.
According to Step By Step Business, you can expect to spend $31,000 to $65,000 on startup costs. This includes the 20% down payment on the house and operational costs such as licensing and registering your business.
Depending on the kinds of houses you want to renovate, and where they’re located, you may need to dish out larger sums of money in down payments.
Hiring a reliable team of contractors is important, too, since they’ll be up to speed on renovation requirements and regulations in addition to keeping your turnaround times manageable.
This will cost you in the ballpark of $50-$150 per hour on average. Don’t forget to factor this into your budget since projects could last anywhere from 4 to 6 months.
Similarly, if you partner with a realtor — which you probably should — that’s an additional 5-6% of the profit on your flip that’s taken as a commission fee.
8 Steps To Starting Your Own House Flipping Business
Whether you’ve already set your mind on flipping houses or you’re still on the fence, it’s important to understand what this business requires to be a success.
Let’s jump right into the first steps you should take.
Step 1: Research The Market
For larger, high-risk investments such as houses, research should always come first.
If you live in or reside nearby a city or locale that you want to start flipping houses in, contact a realtor. Realtors have extensive, up-to-date information on what houses are prime for selling and where they’re located.
There are potential legal holdups with flipping houses, too, so look up real estate attorneys in your area before your first flip. Errors in contracts, FHA re-selling violations, and title issues could derail your deal and possibly damage your reputation.
With the internet, you can do a lot of your market research for free. Research where buyers are buying, how much they’re paying, and what they’re looking for. While there are some variances depending on where you live, there are a few markets that are always hot, including neighborhoods with great schools, areas with low crime rates, and houses that are close to amenities.
Once you’ve got a better sense of your target niche, you’ll be that much closer to establishing a budget and how much you’ll need to get in startup funds.
Step 2: Plan Your Budget
Make a budget that goes over your foreseeable costs to protect your profits. This will give you cost estimates, pinpoint where things could go wrong, and mitigate the danger of running out of money.
To get the ball rolling, how much will you spend as a down payment on your first property? How does your desired turnaround for the flip align with what you can spend on renovation contractors? Will you hire someone to create a website for your business?
On top of that, factor in costs for things like materials for remodeling, permit fees, and advertising. And definitely make sure to budget for delays and hidden property problems, which can and do occur.
Step 3: Write Your Business Plan
Every business should have a business plan, and a house flipping business is no exception.
A business plan outlines the purpose of your business, evaluates the industry and your competition, projects profitability, and states the goals of your business. It also details basic timelines, projected budgets, your market, and the types of properties you plan to flip.
In addition to outlining your goals and how you’ll achieve them, a business plan is also necessary in most cases to obtain funding.
Investors and lenders want to see your business plan to gauge whether giving you their money is risky. A well-informed business plan shows that you know what you’re doing, you’re familiar with the industry and your competition, and you have a good chance for success.
Create a one-page business plan to start. This is a condensed version of the traditional drawn-out plan, offering information such as your objectives, a financial summary, and your industry experience.
Step 4: Set Up Your Business
Now it’s time to set up your business.
At a minimum, this includes choosing a type of business structure and acquiring any required licenses or permits. If you’re operating in an office outside of your home, for example, you’ll need a general business license. Some house flippers opt to get their real estate license. While this isn’t a requirement, it can certainly help.
From there, you can legally operate your business, determine how you pay taxes, and gain credibility with lenders and investors.
Next, you’ll need to register your DBA business name with the state and/or counties in which you’ll operate. Depending on the legal structure you select, additional fees and or paperwork may be required.
Finally, you’ll need to open a business bank account, which will keep your business and personal finances separate — a huge benefit for when you’re doing taxes. This account will also be where your startup funds will go.
Step 5: Find & Secure Funding
Again, if you’re trying to figure out how to start a house flipping business with no money, startup funds are going to be your answer. These are sometimes referred to as fix and flip loans.
The type you select is based on a number of factors, including time in business and your credit history. Make sure that you fully understand the terms, fees, and interest rates associated with your financial product.
Not all funding will be suitable for your business, so don’t rush yourself into a choice that could hurt you in the future. Take your time to get a feel for your options.
Here are a few to consider.
Hard Money Loans
If you have a low credit score, hard money loans may be an option for you. Hard money lenders base lending on the deal itself — not your personal or business credit or lack thereof — but are usually very short-term and have high fees.
If you’re new to the industry, developing a working relationship with a reputable contractor can help you score hard money loans from investors.
Business Line of Credit
Once you’ve been in business for at least a few months, you may need a flexible funding option to purchase properties, pay for renovations, or cover operating costs. In this situation, you may qualify for a business line of credit.
Even if you have a low personal credit score, you may still qualify with lenders that consider the performance of your business over credit history. Bad credit startup loans are an option, and there are some business loans that don’t require a credit check.
Home Equity Loans and HELOCs
If you own your own home, you could use a home equity loan or home equity line of credit (HELOC) to fund your flips.
If you have equity in your home, a low debt-to-income ratio, and a good personal credit score, you could qualify for one of those options. They typically have low rates and favorable terms.
Business Credit Cards
For unexpected expenses or operational costs, consider applying for a business credit card. Used correctly, this is also a great way to start building business credit.
Step 6: Get Business Insurance
A homeowner’s policy won’t give you the coverage you need to protect you from lawsuits, accidents, and other mishaps that can result from running a house flipping business.
You’ll need insurance tailored to your house flipping business as well as special policies for each house that you flip, so it’s best to establish a relationship with an insurance agency or broker early.
Commercial property insurance will reimburse you for damage to your property and assets, such as equipment, tools, and electronics. General liability protects you from legal and medical fees associated with bodily injury and property damage to third parties (such as customers and contractors). A business owners plan will bundle commercial property and general liability at a discounted rate.
Once you’ve hired employees, you’ll need workers’ comp to insure them if they happen to get injured on the job. Commercial auto insurance will come in handy when you and your employees need to travel for work-related purposes.
Extra insurance policies available to house flipping businesses combined with the ones mentioned above will give you more comprehensive protection:
- A builder’s risk policy gives specific coverage for damages that can occur during renovations.
- A dwelling policy, also called vacant home insurance, pays for physical damage to properties while they’re uninhabited and waiting to be sold.
Step 7: Choose The Best Software For Your House Flipping Business
The best software for a house flipping business comes down to identifying the facets of your business that require the most communication and management — financials and workflows are prime candidates.
With project management software, you can delegate tasks to team members, manage project schedules, and monitor progress. This makes it very helpful for keeping track of work and due dates. Mobile access paired with document sharing and management is a huge plus, as it’ll allow you to keep key team members up to date (think attorneys, realtors, and contracting managers).
Zoho Projects, in particular, offers an impressive suite of project management and communications solutions that may prove invaluable for your flips. If you’re looking for free options, Asana and Basecamp are popular.
Another essential is accounting software that helps you manage invoices and keep track of cash flow. Quickbooks’ line of products has great options to help with expense monitoring, invoicing management, and financial reporting.
Step 8: Buy, Renovate, & Sell Your First Property
Now, it’s time to pick a property, buy it for the right price, renovate it, and then flip it for a profit.
This is where your team will come in handy. For instance, your realtor may have information on properties before they hit the market, giving you an advantage over other flippers and buyers.
Your attorney can help with the paperwork and walk you through the steps of purchasing and flipping a house — think, walk-throughs, insurance requirements, and negotiating contracts.
Once you’ve purchased the property, it’s time to start your renovations. Work through your budget and timeline with your contractors, and put the research you did earlier to good use.
Look at comparable properties when determining what renovations need to be completed. For example, if recently sold houses in the same neighborhood have updated granite countertops, add granite countertops to your “to-do” list.
Finally, be prepared for the unexpected. Deadlines may be missed, or there may be additional expenses that weren’t accounted for in the budget. Renovations may reveal unaccounted-for damage and out-of-date home features that need extra TLC.
After the renovations are complete, it’s time to put your house on the market. Your realtor will be a valuable asset by listing the property and helping you market it to buyers.
Then, once a buyer is interested, work with your attorney to make sure everything’s good to go on the legal side. When you sell your property, the money that exceeds what you’ve put into the house is pure profit.
Is Now A Good Time To Start A House Flipping Business?
The rise in prices and interest rates, coupled with the lower number of available homes in the housing market, have had a negative impact on profits. Understandably, this may pose a concern.
Attom Data’s research determined that the median profit of a house flip in Q3 of 2023 was $62,000. The median purchase price for homes was $248,000. That’s an impressive 25% profit margin. (Of course, always research your local market for a more precise estimate of what you stand to gain or lose.)
House flippers still have a lot to consider, however. The prices of construction materials have gone up a considerable amount in recent years, and although portions of the housing market do seem to be shifting toward’s a buyer’s market as of Q1 of 2023, increasing costs are keeping would-be purchasers out. Redfin’s analysis of the market found that the number of homes being purchased are down 46% nationwide.
On the one hand, this may be good news for your venture, since right now you’ll face less competition. On the other, you may need to get creative and invest a fair amount of effort into finding buyers. Holding onto a property for too long will eat into your returns.
At the very least, be aware that you must be willing to take on more risk than in the prior, recent years. If you already have knowledge of the industry and connections within it, you’re off to a great start.
Where Are The Best Places To Flip Houses?
Mid-sized cities in the South and Midwest with strong economies, growing populations, and an abundance of older properties in need of rehab are prime markets for flipping.
According to Motley Fool’s market research, states that yielded the highest profit percentages (rounded to the nearest whole number) in 2022 were:
- Pennsylvania (79%)
- Louisiana (62%)
- New Jersey (60%)
- Maryland (57%)
- Illinois (55%)
- Virginia (52%)
- Kentucky (51%)
- Michigan (50%)
- Nebraska (49%)
- Tennessee (46%)
- Oklahoma (45%)
Every other state had an ROI percentage below 45%. Texas, Idaho, Utah, Oregon, Colorado, and Arizona fared the worst, each coming out to below 15%.
Motley Fool also notes that in 2022, while gross profits increased, the actual returns made on flips have been on a decline since 2017 (51.4% ROI in 2017 to 25.8% in 2022).
The takeaway? Even if you’re in a great location, flipping houses isn’t a “get rich quick” scheme — expect to put in work.
Are You Ready To Start A House Flipping Business?
If you’re ready to put in the work, house flipping can be very rewarding. As you flip your first few houses and begin to find your groove, you’ll find that the process gets easier, just as it does with any other business.
Best of luck with your new and exciting venture!