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How to Start a House Flipping Business
Did you know that the average profit on a house flip last year was $67,000? On top of that, in 2021 the total value of private housing in the US increased by a record of nearly $7 trillion. The real estate boom that began with the start of the pandemic is still going strong, and home sales and sale prices are still on the rise, which means now’s a fantastic time to start your own house-flipping business. You could help families build new lives while making a good living yourself. You don’t even need an office, and if you hire someone to do the renovations, the work is minimal.
But you should know that starting a successful business also requires careful planning and preparation. Luckily, this step-by-step guide lays out all the business knowledge you’ll need to begin your entrepreneurial journey into house-flipping.
$31,550 - $64,100
Time to build
1 – 3 months
$268,000 - $804,000 p.a.
$107,200 - $321,600 p.a.
Step 1: Decide if the Business Is Right for You
Pros and cons
Starting a house-flipping business has pros and cons to consider before deciding if it’s right for you.
- Cash Cow – Big chunks of income from sales
- Low Labor – Buying and selling require little work
- Flexibility – Run the business from home on your time
- Build Homes — Help families achieve their dreams with a new home
- Risky – With old homes, unexpected problems often get expensive
- Commissions – Realtor commissions cut into profits
House-Flipping Industry trends
The U.S. real estate market is worth a massive $200 billion, nearly double its value a decade ago.https://www.ibisworld.com/industry-statistics/market-size/real-estate-sales-brokerage-united-states/ Home sales are projected to increase a further 7% in 2022, which is good news for the house flipper.https://www.realtor.com/research/2022-national-housing-forecast/
Nearly 6% of all home sales in 2020 were flipped homes, which amounts to more than 240,000 homes.https://www.attomdata.com/news/market-trends/flipping/attom-data-solutions-2020-year-end-u-s-home-flipping-report/ This means that house-flipping is alive and well, in spite of government regulations designed to discourage house flipping. These regulations came about because some think that flipping artificially inflates prices, which is thought to be a factor in the housing crash of 2008.
Trends in the house-flipping market include:
- The average gross profit on a flipped home was $67,000 in 2021, a 90% increase from a decade earlier and about a 7% increase in the last 2 years.https://www.statista.com/statistics/816742/average-gross-profit-made-per-home-flip-usa/ Gross profit is the difference between the sale price and the original purchase price and does not include the cost of renovations or carrying costs. The average net profit, meaning what you actually keep of the gross profit, is 40%.
- Over 40% of all home purchases by flippers were done with financing. Financing is often hard money financing, which is financing using the property as collateral and is usually done through a real estate investor or private money lender.
Challenges in the house-flipping industry include:
- Theft and damage are common problems for house flippers when the home is left vacant, adding to costs.
- Government regulations designed to discourage flipping can limit house-flipping opportunities. Homes that are backed by government agencies like FHA delay bidding for investors, giving the first opportunities to owner-occupant buyers.
How much does it cost to start a house-flipping business?
Startup costs for a house-flipping business range from $30,000 to $60,000. The largest expenses are the 20% down payment on your first house and the cost of renovations. If you can do the renovations yourself, you’ll save some money. You might brush up on your carpentry skills or other remodeling schools with online classes at Penn Foster or Construct-ED.
Also, if you get your real estate license, as a real estate broker or a real estate agent, you can save money on commissions and keep even more cash in your pocket. Each state has their own laws, so you need to take state-specific real estate classes and pass your state’s real estate exam. You can usually get licensed in 3 – 6 months for about $1,500.
|Start-up Costs||Ballpark Range||Average|
|Setting up a business name and corporation||$150 - $200||$175|
|Business licenses and permits||$100 - $300||$200|
|Business cards and brochures||$200 - $300||$250|
|Website setup||$1,000 - $3,000||$2,000|
|Down payment on first house||$20,000 - $40,000||$30,000|
|Renovations on first house||$10,000 - $20,000||$15,000|
|Total||$31,550 - $64,100||$47,825|
How much can you earn from a house-flipping business?
The average sale price of a flipped house is $267,000, which is $67,000 more, on average, than the initial sale price. After renovations and commissions, your profit margin should be about 40%, or nearly $27,000 per home.
In your first year or two flipping homes, you could flip one per quarter and bring in nearly $270,000 in annual revenue. This would mean almost $110,000 in profit, assuming that 40% margin. As your business gains traction, you could do 1 flip per month. With annual revenue of over $800,000, you’d make a tidy profit of nearly $325,000.
What barriers to entry are there?
There are a few barriers to entry for a house-flipping business. Your biggest challenges will be:
- Funding your first down payment and renovations
- Finding quality properties at good prices
Step 2: Hone Your Idea
Now that you know what’s involved in starting a house-flipping business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Research house-flipping businesses in your area to examine their renovations and sales prices. You’re looking for a market gap to fill. For instance, maybe local homebuyers would prefer a flipper that does high-quality renovations rather than cheap, fast-flip renovations.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as luxury homes or eco-friendly homes. This could jumpstart your word-of-mouth marketing and attract clients right away.
What? Determine your products or services
Essentially, you need to determine two things:
- What price range homes you want to buy. Homes in higher price ranges will tend to bring in higher profit but will require more of an investment.
- The quality and extent of the renovations you want to do.
How much should you charge for house-flipping?
Your sales prices will depend on your local real estate market. Your expenses will be the purchase price, renovations costs, commissions, and carrying costs. You should try to aim for a profit margin of 40%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points.
Who? Identify your target market
Your target market will be two-fold:
- Home sellers willing to sell their homes at or below market value
- Home buyers interested in your renovated homes
Your best bet is to partner with realtors, who you can find on LinkedIn, Google Maps or Yelp. You may also be able to call your local board of realtors to obtain a list. If you get your own real estate license, you’ll save as much as 7% of the sale price, which means thousands of dollars on every sale.
Where? Choose your business premises
In the early stages, you may want to run your business from home to keep costs low, and it’s likely that you will continue to do so. But as your business grows, you may need to hire workers for various roles and rent out an office. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- Name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “renovated homes” or “upgraded homes”, boosts SEO
- Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Step 4: Create a Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
- Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your offerings in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to house-flipping businesses.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your house-flipping business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
- Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
- General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
- Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
- C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
- S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Step 6: Register for Taxes
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
- Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
- SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
- Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
- Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
- Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
- Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank loans are probably the best option, other than friends and family, for funding a house-flipping business. You can also look for hard money lenders online.
Step 8: Apply for Licenses/Permits
Starting a house-flipping business requires obtaining a number of licenses and permits from local, state, and federal governments. Getting a real estate license is not necessary, but it will increase your profits.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Step 9: Open a Business Bank Account
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your house-flipping business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
- General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
- Business Property: Provides coverage for your equipment and supplies.
- Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
- Worker’s compensation: Provides compensation to employees injured on the job.
- Property: Covers your physical space, whether it is a cart, storefront, or office.
- Commercial auto: Protection for your company-owned vehicle.
- Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
- Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
Some of your business will come from the casual online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
- Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Contact Now”. This can sharply increase purchases.
- Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your house-flipping business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your house-flipping business could be:
- We buy regardless of condition, and close fast
- Finely renovated luxury homes
- Settling an estate? Sell your home fast for cash
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
- Flyering – Distribute flyers in your neighborhood and at industry events
- Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal.
- Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
- Seek out referrals – Offer incentives to generate customer referrals to new clients.
- Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
- Pay–per-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
- Testimonials – Share customer testimonials about how your purchase of sale of their home helped them
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now in real estate or running a house-flipping business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been house-flipping for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in real estate. You’ll probably generate new customers or find companies with which you could establish a partnership.
- Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
- If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a house-flipping business include:
- Renovation Specialist – home renovations, manage sub-contractors
- General Manager – staff management, scheduling, accounting
- Marketing Lead – SEO strategies, social media, other marketing
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Step 13: Start Making Money!
A booming real estate market offers the perfect time to get in on the action. It’ll require significant investment, but your returns from house-flipping can be phenomenal. Now that you have all the business know-how you need, go ahead and embark on your house-flipping success story!
House-Flipping Business FAQs
You can get into the business with one house and spend about $30,000 on a down payment and renovations. It will all depend on how much you want to spend on your first flip and what kind of financing terms you can get.
House-flipping can be extremely profitable! The average gross profit on a flipped home is $67,000, so imagine the revenue you can bring in by flipping one house per month!
You may need business licenses and permits at the state and local levels. Check with your local governments for requirements or visit MyCorporation’s Business License Compliance page. If you get a real estate license you can save on commissions and make more money.
You can partner with real estate agents to find available homes and you can also advertise your business online to find people who need to sell their homes quickly and are willing to sell at a discount.