The definition of flipping is as varied as the definition of a “good” investment. I looked up the definition of “Flipping” (houses) and there isn’t actually a dictionary entry yet! The closest definition I could find actually applies to equities in the stock market (but it seems correct): “To buy and sell an equity within a short period of time to take profits is called flipping.” Source As you begin to work on deals for your flips, you will find that every flip will fall into one of the three categories:
- Paint and clean
- Bath and kitchen rehab
- Major renovation
These are NOT concrete categories, as often a flip will involve some of all three categories, but generally it will fall into one of these categories overall. Here are the definitions:
- Flip #1-Paint and clean-You are not looked at any differently if you admit you do this type of flip! It is probably the lowest capital requirement and lowest risk, but also possibly the lowest amount of income potential. This type of flip has a low degree of difficultly and is very good for new flippers that are going to do most of the work themselves (almost anyone can learn to paint in a short amount of time and hopefully you already know how to clean!). Because of the lower income potential, the key to the success of this flip is to do the work as fast as possible. These are also good candidates for “flip and holds” (as I like to call them) as you should be able to quickly begin to rent them out and generate cash flow (possibly even before you first mortgage payment is due).
- Flip #2-Bath and kitchen rehab-Often these flips are not totally confined to the bath and kitchen, but they generally do not include significant wall removal, installation, or any structural changes. They will normally include a paint and clean of the entire property also. These flips can produce high income, but require less risk and capital than a major renovation as you may not be moving walls and adding square footage. The key to success with these flips is to minimize the lead times on cabinets and have a standard “package” of materials (cabinets, flooring, counters, etc) that you use repeatedly and become familiar with and know that they appeal to your buyers. The level of difficulty is moderate with this type of flip and will require the use of professionals for plumbing and electrical at a minimum.
- Flip #3-Major renovation-These are renovations that add square footage, change the floor plan significantly, or repair/replace a major part of the property. These include additions, finishing basements or attics, moving walls (including load bearing walls) to open a room or add more space from one room to another. This type of flip has a high degree of complexity, risk, and capital requirement. It should be undertaken by individuals that have experience (or access to someone with experience) in framing and general contracting. The key to success is to have an accurate understanding of everything that must be done and when to coordinate this complex project. Often new flippers will take on a project of this size in their spare time and weekends, only to find themselves overwhelmed, over budget, and over schedule.
When considering getting into flipping, it is important to be realistic in assessing your capabilities, the capital requirements of the project, the time commitments, and risk. It is always better to start small or easier and graduate to larger and more complex projects.