Business Overview

The real estate buy and flip model is one of many investment strategies used by real estate investors. This strategy involves analyzing markets, placing offers, buying property, and making any necessary repairs (called rehabbing), then marketing and selling the property for profit.

Who is this business right for?

The buy and flip investor needs to spend a good amount of time working on each investment. Therefore, a good investor will be a committed and well-organized one. A solid understanding of the real estate market in your area will be crucial, as you need to understand what makes a property a good investment based on your goals and objectives.

What happens during a typical day at a house flipping business?

A buy and flip investor will need to learn the market value, buying process, rehab process, and marketing and selling process. Buy and flip investors spend a majority of their time in the rehab portion of projects, but there’s more to it. Here’s some of the activities that an investor might do:

  • Search for properties that are available to purchase either on the multiple listing services or off-the-market properties
  • Work with traditional lenders, private lenders, hard money lenders, etc. to secure financing for purchases
  • Constantly build a list of real estate wholesalers and bird dogs
  • Make offers on properties
  • Close on offers
  • Constantly establish a list of contractors
  • Rehab properties, which includes, but is not limited to:
    • Electrical repairs
    • Structural repairs
    • HVAC repairs
    • Landscaping
  • Market the properties
  • Establish a list of title companies to ensure title is valid and issue title insurance
  • Find a real estate broker to help with the sale
  • Sell the properties

Buy and flip investors will spend more time on different tasks depending on where they are in the investment process, but all of these tasks will be important.

What is the target market?

A buy and flip investor works with property owners/sellers on one end, and on the other end, sells the property to a buyer who wants to buy it as their primary residence. A good property owner/seller is one who is urgent in his/her need to sell their property. This urgency can be the result of a number of factors, like:

  • Desire to move quickly
  • Desire to get out of a mortgage
  • Other factors that may be causing stress, typically financial

A buy and flip investor can offer sellers a mutually beneficial arrangement, whereby the investor acquires the property and the seller's stress is alleviated.

After purchasing and rehabbing a property, it is typically sold  A good buyer-investor is someone who is very interested in purchasing the particular type of property the buy and flip investor has for sale. Buyers are most preferred when they are well-funded, as they can make stronger offers to the buy and flip investor.

Personal buyers are interested in purchasing properties to use as their personal residence or place of business. These customers may be great customers for buy and flip investors, as their personal attachment to properties may make them more willing to spend big to secure the property.

How does a house flipping business make money?

Buy and flip investors make their money when they sell the property in order to profit on their investments. A savvy investor will look for investment properties that are profitable without any market appreciation (the increase in the value of property). A buy and flip investor’s profit is calculated as follows:

Profit = Sale Price of Property - (Purchase Price of Property + Rehab Costs + Auxiliary Costs)

For example, if an investor purchases a home for $50,000, and rehab costs add up to $30,000, the investor will have put $80,000 into the property. If the investor sells the property for $150,000, the investor will have made $70,000 profit.

Most investors operate under a general rule: when flipping property, you make your money when you buy. That is to say, it is best practice not to buy properties with the expectation that rehab and/or an increase in market value will justify your investment. It is best to buy a property well under current market value, which will leave plenty of room for a return on investment after rehab and auxiliary costs (like marketing, commission, etc.) are factored in.

What is the growth potential for a house flipping business?

A real estate buy and flip business is only limited by the number of properties an investor can flip. Buy and flip investors can reinvest all or some of their profits into the purchase of more (or more expensive) properties to flip.