How to Start Investing in Real Estate – House Flipping

Many people want to invest in real estate but never get brave enough to try or have no idea how to start investing in real estate. It doesn’t have to be complex right away. We started simple.

It may take more work and a little sweat equity at first but getting started is the hard part. Keep in mind this is not a passive way to invest. Eventually, it can turn into a more passive investment but at first, expect work.

How We Got Started 

We started by doing DIY projects for homes we lived in. Not with intentions to flip the house but because we wanted to enjoy our home more. We didn’t think of the fact that it would lead to higher prices when selling our home. I wish we would have considered that from the beginning.

Having always had dogs we got good at replacing old carpet with laminate plank flooring. Being broke we got good at installing it ourselves. Most of our extra money went to paying off bills. I hate having debt, paying off debts helped us out later in life but when paying it off there isn’t much cash to spare.

Our first house was not a gold mine… Buying a house in 2006 just before a huge housing market crash may have hurt the value just a little…

But on the bright side when we sold it in 2013 we weren’t upside down on the mortgage and still had some equity to put towards our new house. Some improvements we made helped with the value of the house and probably contributed to us being able to sell it, get some money out of it, and not have a short sale.

How We Started to Made Money 

In the next house, we made some major improvements. This included a good-sized kitchen remodel (this made us decide never to remodel a kitchen in a house we were living in ever again), flooring, painting, appliances, and added a pole barn. All these projects we did ourselves with help from some family. At the time we didn’t plan to move. We didn’t worry about increasing the value just making the house how we wanted.

Laying laminate flooring

Life happens sometimes. Even though we didn’t plan on moving we did. When the house sold for 80k more than we bought it for (the improved market also helped this number) and we had a large amount of equity to put into our next house.

After this, we started discussing the idea of flipping a house. For both houses, the buyers expressed how much they liked the work we did, the colors we choose, and the layout changes we made.

We discussed buying a cheaper house and fixing it up while living in it. We decided we would hate each other by the end of living in a fix and flip. Deciding to look for a place that we could afford to buy and fix up while not living in it instead.

Great Money Makers 

Fixing the house you live in and selling it is an excellent way to make money. For any house you live in for more than 2 years our of the last 5 you don’t have to pay taxes when you sell it. I believe it’s a $250,000 profit per person. Those married and filing jointly can be up to $500,000 profit tax-free. Starting this way is one of the ways I highly recommend getting into real estate.

The one drawback is you live in a construction zone while doing renovations. This is how we had extra money to invest in a flip house we weren’t living in.

Putting in some sweat equity yourself helps add value and you learn some valuable skills while doing it. After doing this a few times and making money it can give you capital to start flipping without having to live in them or waiting two years. You going to need to pay taxes on a flip you don’t live in. Make sure to keep track of your finances and use a good accountant. Here is an article with a few tips on keeping track of accounting for house flips.

If you want to stick to live-in flips you can move every 2 years after fixing up a house and use the money to pay off the next house. You can save it, put it toward retirement, or anything you want. You could use just this method and save or make enough to retire early. The only downside is your moving every 2 years which can be frustrating.

Finding a Good Flip

A lot goes into finding a good flip. I won’t go over all the details in this post but a few things to consider are:

  • Location especially if you will be living or working there daily
  • Condition of the house.
  • The repair costs.
  • The housing market in general.
  • How long you plan to own it.
  • Doing the work yourself or using a contractor.
  • Having more than one exit plan.

A good realtor can make all the difference in the world. That’s not to say you don’t have to do any work and trust your realtor completely. I would still check daily the MLS, Zillow, or other sites that list FSBO (for sale by owner), craigslist, Facebook marketplace, and any place I can find.

Looking for yourself gives you a better understanding of:

  • What places are moving or sitting on the market.
  • An estimate of the prices a property may be worth after rehab.
  • where good locations are.

Often our realtor showed up with a few comparable printed our for us so we would have a rough idea of what a house could be worth. It wasn’t a perfect analysis but it helped. I would quickly run some numbers to get an idea if a house would be a good investment or not.

Our First Non-Live in Flip

The first flip house we ended up buying was a foreclosure. Before that, we spent months looking and going through flea-infested, haunted basements, mold-covered and mysteriously disappearing cat houses.

It becomes hard not to settle and overpay when you are excited to buy a house and the market is competitive. Also, it is hard to pull the trigger and buy something for the first time. The first house was a real struggle for us.

A great informational place is bigger pockets they have some amazing forums and podcasts. You can upgrade there but I currently have a free account and am happy with that.

The first home we bought everything on the outside was pretty recent. The roof was in great condition, the siding was good, there was a nice garage. The inside was ugly and not functional the way it was set up. It took about 6 months for the rehab. Most of which we did ourselves aside from a few things we needed professionals to deal with like countertops, and heating/cooling issues, caret install.

When deciding to do something yourself or go with a pro weigh the pros and cons carefully. Even things like painting could take you weeks longer than a professional.

We got the house days before our state was locked down for COVID… What a great time to buy a house! Getting supplies was a bit of a pain but social distancing was easy for us.

Invest in Yourself

I know that sounds a little cheesy but think of it as investing in education. The first flip house is going to be the hardest… but do it anyway! Doesn’t matter if you lose money or time as long as you learned something. Real estate investing can improve your financial future drastically.

I like to compare the first flip to going to college. It is expensive, time-consuming, and hopefully, you learn something. But it has the potential to change your entire future.

Start slowly by working on your current house or buy a house to live in and fix. That is the easiest way to start in my opinion.

Feeling braver than that? Buy a duplex and get some tenants. Try getting a larger house that the basement or upstairs can be rented out and get some roommates (aka house hacking). Rent out the most expensive unit or rooms and work on fixing up the one your living in.

We made a good profit off our first flip but even if we had lost money there was so much we learned. We could have made a better profit if we didn’t make mistakes but that’s part of learning. Buying too much of some materials, not enough of others, extra trips to the store, changed our designs about a million times. The mistakes aren’t failures they are simply learning experiences.

If you truly want to do it, commit to doing it, and continue to learn and improve. Ever investing in real estate? I would love to hear how you got started or how you plan to start.

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