Flipping houses has become extremely trendy as a real estate investment strategy thanks to several popular TV shows on the subject. But how realistic are they? Can anyone decide to buy a home, fix it up, and sell for a profit? Is there really money to be made for everyday investors by flipping houses?
The short answer
The short answer is yes. According to our house-flipping research, there were over 407,000 single-family homes and condos flipped in 2022. The average gross profit on a flip last year was $67,900. This equals a return on investment of 26.9%. It's also important to note that it wasn't just 2022 being a standout year -- home-flipping gross profits have averaged over $60,000 in every year since 2017.
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It's important to mention that this is a gross profit and doesn't include all of the expenses involved with the flip. For example, if you finance the property, gross profit calculations generally don't include your interest expense. And also consider that you're likely to spend many hours managing your house-flipping projects, so it's important to keep this in mind.
Having said all of that, there is definitely money to be made flipping houses. The average flip generates a nice gross profit.
Things to consider before flipping houses
There is a lot of money to be made flipping houses. But despite what you may have seen on TV, it isn't easy money. Before you decide to try your first house flip, there are a few things you need to keep in mind.
First, flipping houses is not a type of passive real estate investment. You will need to dedicate a lot of time and must be prepared to handle unexpected situations. If your goal is passive income from a real estate investment, there are other ways to get it that are far easier.
Second, there are lots of costs involved with flipping houses, including some that beginners don't often consider. For starters, you'll need to estimate your repair and renovation costs, but keep in mind that they are just that -- estimates. Plus, many first-timers overlook the holding costs of the property. If you finance, you'll need to make loan payments on the property. You'll also have to pay insurance, property taxes, and utilities. Be sure to account for all of these, as well as some wiggle room for unexpected expenses.
Speaking of financing, it can be difficult and expensive when it comes to obtaining financing for a fix-and-flip project, especially if it's your first one. You'll probably have to look at a hard money or other non-traditional lender, and you can expect to pay a significantly higher interest rate. More flips have been done in cash in recent years, with just 35% of house flips purchased with financing in 2022, down from 43% in 2017.
Finally, keep in mind that in order to be a successful house flipper, you'll need to have a good team around you. You'll need an excellent real estate agent, home inspector, contractor(s), lender, insurance agent, etc. It's tough to overstate the value of having a good team around you as a house flipper.
The bottom line
To sum it up, you absolutely can make money flipping houses. However, it's not an easy business, and there's a lot to learn before you get started.
If you're thinking about starting your first house-flipping project, the best thing you can do is to learn all you can. Read about the best strategies and practices. Talk to experienced house flippers in your local market and learn what works and doesn't work for them. And above all, expect (and plan for) the unexpected, especially while you're still learning.
