Starting flipping houses can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching successful flipping houses.
Importantly, a critical step in starting a house flipping business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Flipping Houses:
- Choose the Name for Your House Flipping Business
- Develop Your House Flipping Business Plan
- Choose the Legal Structure for Your House Flipping Business
- Secure Startup Funding for Your House Flipping Business (If Needed)
- Secure a Location for Your Business
- Register Your House Flipping Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your House Flipping Business
- Buy or Lease the Right House Flipping Business Equipment
- Develop Your House Flipping Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your House Flipping Business
- Open for Business
1. Choose the Name for Your House Flipping Business
The first step to starting a house flipping business is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your own house flipping business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your house flipping business.
2. Develop Your House Flipping Business Plan
One of the most important steps in starting a house flipping business is to develop your business plan. The process of creating your plan ensures that you fully understand your local market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan sso readers can quickly understand the key details of your own house flipping business.
- Company Overview – this section tells the reader about the history of your house flipping business and what type of house flipping business you operate. For example, are you a short flipping, long flipping or a wholesale house flipping business?
- Industry Analysis – here you will document key information about the house flipping industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your house flipping business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your house flipping business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your House Flipping Business
Next you need to choose a legal structure for your house flipping business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the house flipping business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a house flipping business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a house flipping business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a house flipping business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your house flipping business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your House Flipping Business (If Needed)
In developing your house flipping business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a house flipping business to consider are personal savings, family and friends, credit card financing, traditional bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a house flipping business that they believe has high potential for growth.
5. Secure a Location for Your Business
One of the first things you’ll need to do when starting your house flipping business is find a good location. You’ll want to think about things like how much office space you’ll need, how accessible the location is, and what kind of zoning restrictions might be in place.
6. Register Your House Flipping Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a business bank account for your house flipping business. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your house flipping business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
In order to start a house flipping business, you will need a business license and a real estate license. You may also need a contractor’s license depending on the state. Finally, you will need to acquire any permits required for your specific project. These permits may include a demolition permit, construction permit, or zoning permit. Always do your research ahead of time to avoid any costly surprises.
10. Get Business Insurance for Your House Flipping Business
The type of insurance you need to operate a house flipping business will vary depending on the state.
Some business insurance policies you should consider for your flipping houses include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right House Flipping Equipment
To flip a house, you will need some basic tools and equipment. A few key items include a hammer, screwdriver, drill, level, tape measure, and chalk line. You’ll also need a ladder, saw horses, and a construction adhesive. In addition, you’ll need to purchase or rent a dumpster to discard the debris from your renovation project.
12. Develop Your House Flipping Marketing Materials
Marketing materials will be required to attract and retain customers to your house flipping business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your house flipping business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your house flipping business.
13. Purchase and Setup the Software Needed to Run Your House Flipping Business
To flip houses, you will need some property management software. This software will help you keep track of your properties, their finances, and their maintenance. You may also need construction management software to help you track your progress on each property. Other software that can be helpful includes accounting software and real estate analysis software.
14. Open for Business
You are now ready to open your house flipping business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start Flipping Houses FAQs
Is it hard to start flipping houses?
No, it's not difficult to start flipping houses because it doesn't require a lot of hard money loans or experience. All you need is a little bit of money to buy a cheap house, and the willingness to put in some hard work.
How can I start flipping houses with no experience?
There are a few ways to start a successful house flipping business with no experience. You may want to look for a mentor such as a real estate agent or a real estate investor with industry expertise. You can also watch online tutorials, or read books on the subject. Another option is to join an online flipping course. These courses provide all the information you need to get started, and many of them offer support from experienced flippers.
What type of house flipping business is most profitable?
The most profitable is probably wholesale flipping. In wholesale flipping, you purchase a property at a discount, renovate it quickly, and then sell it for a profit. This type of flipping can be very profitable, but it also requires a lot of work and knowledge.
How much does it cost to start flipping houses?
It typically costs around $10,000 to be a house flipper. This includes purchasing the necessary tools and materials, as well as hiring a contractor to help with the renovation process.
What are the ongoing expenses for flipping houses?
One of the ongoing expenses for a house flipping business is the cost of repairs and renovations. This can include anything from painting and fixing up the yard to replacing the roof or windows. You'll also need to factor in the cost of permits, licenses, and inspections.
How does a house flipping business make money?
There are a few different ways house flippers can make money. The most common is to buy a house for a low price, fix it up, and sell it for a higher price. Another way house flipping businesses can make money is by renting out the house after it’s fixed up.
Is owning a house flipping business profitable?
Yes, if you fix and flip properties at a low price and then sell them quickly for a higher price, you can make a healthy profit. In addition, house flipping can be a way to make money when the real estate market for new houses is slow, because more people may be interested in purchasing renovated houses.
Why do house flipping businesses fail?
House flipping businesses can fail for a number of reasons, but the most common are not being able to sell the house for more than you paid for it, not making enough repairs before putting it on the market, or spending too much money on renovations.