How to Flip Your Own House

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A short summary

While you may know that house flipping can be a successful real estate investing strategy, have you considered flipping your primary residence? Take a look at our step-by-step guide on how to flip your own house, to see if this is the right strategy for you.

Table of Contents

Flipping houses is a common strategy used by real estate investors. It involves buying a property, repairing and renovating it, and then selling it for a higher price to make a profit. It’s not often that someone flips a house that they are living in, however it can still be a profitable option. There are pros and cons to this strategy, so let’s delve a little deeper into the topic of how to flip your own house.

How to flip your own house – Step-by-step guide

Flipping your own house means that you live in your investment, which can be a good solution to help you tap into tax benefits which contribute to making the strategy a profitable one. The tax benefit here is that you’ll be exempt from capital gains tax due to the fact that it’s your primary residence. However, the property needs to be your primary residence for at least 2 of the 5 years before the sale.

Here’s our step-by-step guide to flipping your own house:

house interior

Step 1: Find the right house to flip

If you plan on flipping the house you’re going to be living in, it’s important to keep this in mind when you’re buying the house. This means, you’ll need to a find a house that is selling below market value and needs a few repairs, but these should be minor and not require any major renovations as you’ll be living in the house and you’ll more than likely be using conventional loans for the projects.

In other words, a house that needs some cosmetic fixes and a light rehab would be the ideal house for a live-in fix and flip property. Don’t choose a house with roof or foundation problems as these often won’t meet the lender’s property condition standards.

You can find the right property online using real estate websites, the MLS or tools like New Silver’s FlipScout. You can also consider finding homes that are in foreclosure or on auction, to get a better deal.

Step 2: Choose a financing option

We will discuss the various options for financing your renovation below, but to finance the purchase of the property you have a few options such as conventional mortgage, FHA loan, FHA 203(k) loan and more. Pick the right financing option to suit your needs, which largely depends on the amount of time that you plan on living in the house.  

Step 3: Renovate the house

One of the most important steps of flipping a house is the rehab part, which is where you add as much value as you can to the house by renovating and repairing the necessary parts of the house. Some tips for the renovation:

  • It’s not necessary to spend a lot on high-end fixtures and finishes, stick to functional but good-looking fixtures and finishes to get the most bang for your buck overall.
  • Don’t leave the renovations until the last minute, it’s vital to have the property ready and upgraded before you list it.
  • Don’t forget about the outside. Sometimes house flippers can overlook the exterior of the house, and it’s a crucial element to maximize profits on the house when you’re selling it. Make sure the yard is landscaped and neat, and the house exterior is painted.
  • Neutral colors are the best idea for houses that are being renovated in order to sell again, as most buyers will prefer these. Bear in mind that any fixtures and finishes that you get for the house will need to appeal to buyers.

Step 4: Sell the house

Now it’s time to sell the house that you’ve worked hard to renovate and improve. Hiring a real estate agent is an option, they can help you with the sale and will be able to get it listed and sold as quick as possible. However, you can also sell the property yourself. It’s a good idea to get professional pictures taken of your property for the listing.

At this stage, you’ll need to make sure that you have somewhere lined up to go once the house is sold, so you could either stage the home and move out before it sells, or get it arranged well enough to be photographed and move out once it is sold.

Create a timeline for executing the house flip

renovating

One of the most useful steps to flipping your own house is creating a timeline to stick to. This starts with a timeline for how long your repairs and renovations will take, and once you’ve worked out how long these will take to complete, you can map out the timeline for when the best time to sell your property would be.

It’s important to stick to the timeline for your repairs and renovations so that you can achieve your goal of selling the house at the right time. This time will depend on the local real estate market and the time of year can also influence the sale of your home.

Calculate the After Repair Value of your house

The After Repair Value is the estimated value of a property once the renovations have been completed. This is important to a successful house flip because it will help you work out the value that the renovations will add to your house. There are some useful online tools to help you calculate ARV, such as New Silver’s ARV calculator. Otherwise, we’ve outlined the formula below.

ARV formula

Part of the process of working out the ARV involves finding comparable properties in the area, which are properties that are a similar size in square feet, with the same number of bedrooms and bathrooms, and similar features. Getting to know what comparable properties in the area are priced at, can help you price your home better and is an important part of working out what the ARV of your home will be.

Focus on renovations that will increase the value of your home

It’s easy to get caught up in the repair and renovation process and want to do as many renovations as possible, however it’s a better idea to focus on the renovations that will increase the value of your home the most. These will have the best ROI and therefore be a better investment, particularly if you’re on a tight budget.

Here are a few of the best renovations for increasing your home’s value:

  • Kitchen remodels: 60-120% of costs can be recouped on kitchen remodels, which can either be major or minor. The average kitchen remodel cost for smaller projects range between $10,000 and $15,000, while larger remodels can cost up to an average of $25,000. It’s not always necessary to re-do the entire kitchen, small changes like a new coat of paint, changing the cabinets and giving it a deep clean can go a long way towards upgrading a kitchen.
  • Bathroom remodels: 75% of costs can be recouped on bathroom remodels, which can range in price from $9,000 to $11,000 for lower-end projects, and over $20,000 for higher-end remodels. A bathroom remodel doesn’t need to involve a full upgrade, but instead you could change the paint color, change the lighting and install new fixtures to create an entirely new look in the bathroom.
  • Decks and outdoor spaces: Estimates show that properties that have added a deck can expect to recoup about 80% of their costs when they sell the property. Wooden decks are the most cost-effective and the idea is to create a space that is both functional and aesthetically pleasing.
  • New garage doors: A good looking garage door is one of the best investments to make to a home to increase its value. The average cost of a garage door is around $4,000, and the cost recouped is usually about 93.8% of this. A new garage door adds to a home’s curb appeal and makes it easier to sell.
renovations

Source the funds you need to complete the renovations

Paying for your home renovations can be done in various ways, so don’t be put off by the price. Here are a few great options to finance your home renovations:

  • Home equity loan: This is also called a second mortgage, which essentially uses the equity you have built up in your home already, to fund the renovations. It is paid out at a fixed rate, in a lump sum, and you will repay it over the agreed upon loan terms. If you already know what renovations you want and how much they will cost, this can be a good option for you.
  • HELOC: A Home Equity Line of Credit is a useful way to get the funds you’ll need for your home renovation. Unlike a home equity loan, this uses a line of credit which you can tap into throughout your renovations. These tend to have lower interest rates and also use the equity you have already built up on your house.
  • Credit cards: These can be an easier way to get funding for your renovations, however you can expect to pay a higher interest rate.
  • Cash-out refinance: This type of loan involves replacing your current mortgage with a new one that is larger but allows you the funds you need to make the renovations.

Decide on your sales strategy

house for sale

There are a few ways to sell a property these days, that suit different seller needs. Here are some options for you when it comes time to sell the home you’re flipping:

  1. Real estate agent: Using an agent has been the most common way to sell a home for a very long time and remains a popular choice. Agents can list the home and help market it for you, as well as arrange show days. Traditional real estate agents get a commission from the price of your house. Using an agent can be a convenient and hassle-free to sell your property.
  2. Sell the home yourself: Listing a property as For Sale By Owner and selling it yourself can be the right option for those who want full control over the process. You’d need to list the property on real estate websites and co-ordinate all your show days with the buyers and their real estate agents. You’d also need to take care of all the paperwork and negotiations. However, this option is more affordable, and you have more flexibility.
  3. Sell to an iBuyer: This is a newer option available for sellers, who can get a cash offer from online companies that buy homes directly from the owners. These companies are called iBuyers, and they have websites where you can list your home. The beauty of this option is that iBuyers don’t need to physically view the home, so these sales are fast and you won’t need to pay any agent commission.

Figure out where you are going to live, before, during and after the flip

One of the most important differences between flipping a house that isn’t yours, and flipping a home you’re living in, is the fact that you’ll need to find other accommodation when you’re renovating the house, and then when it’s being sold. Your decision here will depend very much on your circumstances and your goal with flipping the house.

Having to live through a renovation and construction being done around you can be a nightmare, so if you can’t handle this part of the process, you’ll need to stay with someone else, rent a hotel room, or use AirBnb for a short-term rental option while the work is being done.

If you are looking for another house to flip after your project is complete, you’ll need to get the timing right between selling your current residence and moving into the new house. Alternatively, if you’re using the flip to make a profit and to find the right house, you may have some extra time to play with. It all depends on your strategy and end goals, however knowing where you’re going to stay during these times, ahead of time, is important.

house for sale

Bonus Tip: Using your home equity to flip a house

As mentioned above, using your home equity can be a very powerful tool when you’re doing a house flip. This method involves using the equity you’ve already built up in your home, to pay for the renovations and repay what’s left of the loan when your house sells. It means that your home is used as collateral for the loan, so if you can no longer afford your repayments, your home would be foreclosed.

The benefits of using your home equity are that the interest rates are usually lower, there is more flexibility on these loans and your interest payments could be tax deductible. You can typically borrow up to 85% of your home’s value using a home equity loan which means that you should be able to fully finance the renovations and pay this back once the property sells. Which means that you got a bigger loan, with less interest, that can be paid back as soon as the house sells.

Final thoughts

Flipping your own house can be a daunting idea, but once you’ve learned the ins and outs, you’ll see that it can also be a successful way to invest in real estate. Depending on your strategy, house flipping can be a lucrative business, even if you’re flipping your own house. It all comes down to making informed decisions and finding good real estate deals.