The Short Answer
The concept of flipping houses has captured the imagination of many aspiring real estate moguls, promising quick returns and substantial gross profit. But before you dive headfirst into this venture, it’s essential to understand the dynamics at play and whether the potential rewards outweigh the risks.
The short answer to whether you can get rich flipping houses is yes! According to ZipRecruiter, on average, house flippers can earn an annual income of about $86,796.
Of course, there is a wide range of earning potential for those who flip houses, based on the number of flips being done, the locations and whether investors are committing to flipping houses full-time or only part-time.
As you can see, making money flipping houses is easily achievable, however it requires careful market analysis, strategic planning and insight into the real estate market.
Jump To
Why You Can Get Rich Flipping Houses
Flipping houses involves purchasing a property, renovating it to increase the value of the property and then selling it again for a profit. These projects are typically done over the period of a few months, and often come with the allure of earning a large gross profit.
The average US annual salary in Q4 of 2023 was $59,384, according to the US Bureau of Labor, which is significantly lower than the average annual profit from flipping houses, which is $86,796.
This shows the great earning potential that comes with flipping houses, in comparison to traditional employment. So, what exactly makes flipping houses such a profit-generating investment strategy?
Reason 1: Scalability
The concept of scalability is integral to generating profits from flipping houses. While regular employment offers capped earning potential through salaries or hourly wages, flipping houses provides investors with limitless opportunities for expansion and growth.
Each successful flip is effectively a profitable liquidation event that can be repeated multiple times throughout the year. Once you have enough capital, you can run various house flipping projects simultaneously. This creates a host of opportunities to earn multiple profits and thereby multiply your revenue streams, compared to an employee that only has one income source, which can’t be multiplied several times throughout the year.
This ability to scale operations and build a portfolio of flipped properties is a powerful driver of wealth accumulation in the realm of real estate investment.
Reason 2: High profit margins
At its core, flipping houses gives investors the opportunity to buy low and sell high, through the purchase of undervalued properties and their subsequent sale after improvements have been made. This creates a high profit margin on each project, with house flipping projects yielding an average gross profit of $66,000 in 2023 in the US, according to Attom data.
Investors who can unlock the value of distressed and undervalued properties can therefore generate high profit margins on these by maximizing their resale value. These profit margins are higher than many other investment opportunities, and doing multiple projects at once means that investors can generate even higher profits.
Reason 3: Autonomy over the process
House flippers can control the entire process, and this autonomy means that they can decide on the amount of time, energy and capital they invest in each project. This means that those who invest themselves fulltime in flipping houses and generate enough capital to take on more than 2 projects, can generate high profits on these and begin generating longer-term wealth.
Reason 4: Leverage market opportunities
Flipping houses is a strategy used by investors to take advantage of the opportunities presented by the market. Savvy investors can identify emerging markets that are poised for growth, for instance, and target distressed properties in these neighborhoods. These properties are usually in dire need of renovation, which is where house flippers can swoop in and make the necessary improvements, then generate a higher profit due to the location.
Being able to leverage real estate market dynamics is one of the biggest ways that you can earn high profits from flipping houses. This also involves knowing the local real estate market trends and being able to pivot to capitalize on these.
Reason 5: Diversification
Flipping houses allows investors the chance to diversify their income streams and hedge against market volatility. By building a diversified house flipping portfolio across various locations and market segments, investors can mitigate the risk involved with this investing strategy and create a robust investment portfolio. Diversifying a portfolio allows investors to adapt to shifts in the market and create a long-term foundation for wealth building and financial stability.
The Biggest Obstacle To Building Wealth Through House Flipping
Executing your first flip can be daunting and this is typically a large stumbling block for those who are new to flipping houses. The first time you flip a house, you’ll learn many hard lessons and are likely to bump your head a few times along the way. For some investors, this may be the end of their house flipping journey, while others can learn from these mistakes to improve on their next project. During the first house flip, some of the most common mistakes made by investors include:
- Insufficient capital: Many investors don’t budget enough for the property purchase, as well as the rehab project. This means that they may sort out financing for the property purchase, but the renovation costs often end up being more than they had budgeted for. The trick here is to be realistic about your budget ahead of time, so that you can secure enough capital to buy the house and renovate it sufficiently. Insufficient capital can quickly be the death of a house flipping project.
- Insufficient time: First timers who are flipping houses may not realize the amount of time required to make a success of the project. Flipping houses is a hands-on investment strategy that requires time and effort from investors, and without adequate time, investors may not give the project enough energy and it could fail.
- Insufficient knowledge and skills: Those who are executing their first house flip may not have enough knowledge and skills to pick the right property. Choosing the wrong property or the wrong area, can be detrimental to a project, which can leave a bad taste in your mouth if the project isn’t as profitable as you’d hoped. It’s important to be aware of the ins and outs of the market and how flipping houses works, in order to avoid this where possible.
How To Fund Your House Flipping Projects
Sourcing the right financing for your house flipping projects is one of the keys to generating profit and building a long-lasting relationship with a lender who can use for your future house flips. There are various methods that you can use to finance house flipping projects:
1. Hard Money Lenders
Hard money lenders like New Silver are a fast and reliable way to get financing for flipping houses. They offer funding within as little as a few days, and instant terms sheets and proof of funds which can help investors beat the competition and secure good deals quickly. Hard money lenders are typically private lenders who aren’t bound by the same regulations as traditional lenders, which means they’re more flexible and likely to work with each investor’s unique situation.
Hard money loans are secured by the property itself, so for those who don’t have a great credit history, these loans are a good alternative to traditional loans as they focus less on your personal financial history and more on the real estate deal itself. The short-term nature of hard money loans, paired with the interest-only payment options make them an effective solution for getting financing for flipping houses.
New Silver’s house flipping calculator is a completely FREE tool that you can use to work out the return on your investment on each house flip, along with the net profit and return on equity.
2. Home Equity Loans or Lines of Credit
Using the equity you already have in another property is another way to get financing for flipping houses. This entails using either a home equity loan or a home equity line of credit (HELOC) to tap into your existing home equity and create a new mortgage that encompasses the extra money needed for the property purchase and the rehab project.
Home equity loans allow investors to borrow against the value of their existing property, while lines of credit offer a revolving source of funds that can be drawn upon as needed. Both options offer competitive interest rates and flexible repayment terms, making them suitable for investors with significant equity in their properties.
3. Crowdfunding and Peer-To-Peer Lending
Alternative sources of funding like crowdfunding and peer to peer lending are also valuable sources of funding for flipping houses. These platforms allow those who are house flipping to gain access to a pool of funds from multiple individuals and gain greater to access to capital, while spreading the risk.
Crowdfunding and peer-to-peer lending offer a streamlined process for securing financing, with competitive interest rates and diverse investment opportunities. Both financing methods have emerged as innovative sources of capital for short-term projects like fix and flips.
Final Thoughts: Is Flipping Houses A Viable Wealth Building Strategy For You?
Ask yourself these key questions to determine if you’re likely to make money flipping houses:
- What are my financial objectives?
Your financial goals will be a deciding factor on whether house flipping is the right strategy for you. This strategy is used for short-term profit gains, and long-term wealth can be built by creating a larger portfolio including multiple house flips. - Do I have the capital or financing available?
Evaluate your current financial situation and whether you have enough capital to contribute, and/or whether you can get the funding you’d require to make a success of flipping houses. - Am I comfortable with risk?
Flipping houses comes with certain risks which you should be aware of, and willing to work with and mitigate where possible if you’re going to success in this realm. Get to grips with these risks and decide whether you’re comfortable pursuing this investing strategy. - Do I have enough time and resources?
Assess your availability to dedicate time and energy to sourcing properties, overseeing renovations and renovation costs, managing contractors, and marketing listings. House flipping projects are time-consuming and require a hands-on approach. - Can I adapt to changes in the market?
Being successful at flipping houses means being able to adapt to changing market conditions and this includes continuous learning and evolving your strategies according to shifts in the market.