How to Start a House Flipping Business in 2025

How house flipping works

Let's start with the basics. Core elements of a house flipping business include:

• Buying damaged or outdated property below market value.
• Making smart renovations — the “fix”.
• Timing the sale — the “flip”. 

Because flipping houses has a low entry barrier and doesn't require significant time or money, it’s a common investment strategy among beginners. J Scott, a well-known real estate expert, says that even an average person outside of real estate should consider house flipping:

“Even a part-time house flipper who has a full-time job can easily flip between two and four houses a year. With an average profit of $20,000-25,000 per flip, there’s no excuse why an average person shouldn’t be able to make an extra $50,000 to $100,000 per year flipping houses in his or her spare time”.

And that is true — the latest data shows that home flippers earned a 30.2% gross profit nationwide before expenses on homes sold during Q1 of 2024, the biggest leap in margins since 2022. 

The facts do not lie: the best time to learn how to start house flipping is now.

How to start house flipping

The process of house flipping consists of many stages, which we’ll refer to as "steps."

Step 1. Understand the real estate market

Each flipping deal starts with common questions:

• What is a reasonable price for a damaged property? 
• How much should you invest in the flip? 
• How should you price the finished product? 

Staying updated on the current status of the real estate market will help you get realistic and relevant answers.

Property values

Beyond understanding the market, you should know how it influences property prices — as the two are interconnected. Property values, including those of damaged houses, are perpetually rising due to inflation, and the rate of inflation itself is not stagnant. In 2023, the average rate of inflation was 4.1%. In 2022, it was 8.0%, and in 2021, it was 4.7%.

Inflation raises property prices by increasing construction and material costs while reducing the purchasing power of money. Additionally, the U.S. real estate market has seen a rapid increase in property prices in the last five years. Home prices rose 9% in 2019, 12.9% in 2020, 15.4% in 2021, and 10.22% in 2022.

Knowing this information is crucial for balancing a competitive price for your property while ensuring consistent wealth generation.

Real estate cycle

The shifts in the economy overlap with the four stages of a pattern known as the "real estate cycle." Spanning an average of 18 years, this cycle informs investors of the general risks and benefits tied to the current stage:

• Recovery: Low property prices offer opportunities for value investments, but market direction is uncertain, and returns may be slow.
• Expansion: Economic growth boosts demand, leading to rising property values and rents. Construction costs increase, and there’s a risk of oversupply.
• Hyper-Supply: Real estate supply peaks. Prices may still be high, but rising vacancies and slowing rent growth introduce risks of market softening.
• Recession: Prices drop, presenting opportunities to acquire properties at a discount. However, vacancy rates are high, rents decline, and financing becomes difficult, increasing the risk for overleveraged investors.

In 2023 and 2024, the residential real estate markets were in the expansion phase of the cycle, characterized by high inflation, low unemployment, and tight supply resulting from COVID-19 disruptions. This trend is likely to continue into 2025, with the hyper-supply phase gradually rolling in over the next few years. In that stage, many investors will liquidate their assets before the market declines, but it is actually wiser to hold real estate for appreciation and focus on short-term cash flow.

Local market trends

Property values and real estate cycle stages affect the entire country, but you must also consider your local market trends to maximize profits in your area. To make informed decisions, ask these questions:

• Demographics trends: Are people moving to the city or town where you intend to do a flip?  
• Neighborhood trends: What is the average property value in your target neighborhood?
• Competition trends: Who are your competitors in the area, and how do they price their properties? 

Once you understand the market, property values, real estate cycles, and local market trends, you're ready to move on to the next stage.

Step 2. Create a business plan

Creating a business plan before flipping real estate is essential for smart budgeting and understanding your approximate timeline. It also helps secure financing by showcasing professionalism and foresight to lenders. Let’s break down the main steps:

Budgeting 

In “The Book on Estimating Rehab Costs”, J Scott defines five main factors that affect the bottom line of your flip:

• Location: Material and labor costs differ by region.
• Contractors: Charges vary based on skill, experience, and workload.
• Level of Finish: Choices between basic or premium finishes can greatly affect costs.
• House Type: Older or historic homes often require specialized work.
• Season: Prices fluctuate by season, with contractors’ demand and availability affecting costs.

The first method of estimating costs is using square footage, which requires expertise and a library of previous flips. However, J Scott recommends the total breakdown estimation. This method involves thoroughly examining the property to tally up every single renovation need, providing a margin of error as low as 5%.

A Scope of Work (SOW) is an even more detailed document with descriptions of repairs, improvements, materials, and labor needed to update the property. While the breakdown estimation will tell you how much to invest, the SOW will help you calculate how much you’ll earn after repairs.

Timeline

Once you've figured out the cost of your rehab, you're ready to tackle the next section of your business plan — the timeline.

How long does it take, on average, to flip a house? Let’s compile every step into a brief table:

‍Financing options

Unless you plan to fund the rehab out of pocket, securing financing is a crucial part of your business plan. There are several ways to finance a flip:

• Conventional loans.  Low-interest rates (3-5%) but difficult to obtain for investors. Typically, lenders won’t finance properties in poor condition, and rehab costs are rarely covered.
  
• Portfolio loans: Small, local banks may offer loans with down payments as low as 20-30%. These loans cover rehab costs and close in 7-10 days but have higher interest rates (9-14%).
  
• Private investors and hard money lenders: Private investors provide flexible funding, while hard money loans focus on the property rather than borrower finances. Hard money loans come with high interest (up to 15%) and fees.
• Equity investors. These investors fund deals in exchange for 50% of profits, requiring no upfront costs but sharing the proceeds.

Here's how J Scott sums up all of these options in a table:

Exit strategy

Choosing the right exit strategy is key to maximizing profits. In his famous book, Pace Morby  offers these options:

• Wholesaling. Secure a contract with a seller and sell it to a buyer for a fee. Wholesalers can earn between $5,000 and $40,000 per deal with little upfront investment.
• Wraps. Resell a property with new terms. You can make money through the down payment, higher interest rates, and built-in equity.
• Lease options. Rent the property to collect monthly cash flow, creating profit from rental income while covering your mortgage.

Step 3. Find the right property

Now that you’ve done your research, secured your funds, drafted a business plan, and selected an exit strategy, it’s time to commit to the flip. But how do you choose the best property for your rehab?

In Flipping Houses For Dummies, Ralph R. Roberts, Joseph Kraynak, and Kyle Roberts give a list of signs that a house will make a great flip:

• Located in a real estate hotspot where prices climb by more than 10% annually.
• Shows signs of being vacant: full mailbox, piles of newspapers, overgrown lawn.
• The “For Sale By Owner” ad is shrinking; the longer it’s on the market, the smaller the ad becomes.
• The seller is highly motivated to sell quickly.
• The house is visually unappealing both inside and outside.
• The house has outdated décor.
• The house has undeveloped living space, like an attic or enclosed porch.

You can also work with an investor-friendly real estate agent to help you find the best property. These agents specialize in complex transactions like foreclosures and REOs and can tailor searches to fit your investment goals.

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‍Off-market properties

Today 11% of sellers find buyers without listing their property. Poor property condition is often a key reason for this. Off-market properties are excellent for rehabs. To find them:

• Drive through neighborhoods, looking for distressed properties and contact the owners directly.
• Build relationships with other investors and contractors at local real estate clubs or investment meetings.
• Send postcards or letters to homeowners in targeted areas to generate leads.
• Place signs in high-traffic areas to attract sellers looking for a quick sale.
• Monitor probate, bankruptcy, and foreclosure notices to find distressed sellers.

Step 4. Calculate the desired ARV

ARV is the estimated market value of the property after all repairs. A profit of 20% is ideal, but you should definitely get no less than 10%. 

For example, if you invest $100,000 and earn $20,000 in net profit, that’s a successful flip. Total investment includes the purchase price, closing costs, holding costs, repair expenses, agent commissions, and other fees. Market conditions will impact your profit goals. Target a 20% return in rising markets, 25% in stable markets, and 30% in declining markets to build in a buffer.

Here’s how to calculate the maximum offer price:

• Start with the property’s estimated ARV.
• Deduct your desired profits (10-20% based on the market).
• Subtract closing fees, back taxes, repair costs, holding costs, and agent commissions.
  This ensures you don’t overpay and can still achieve your profit target.

Example‍

Let’s take a property in a rising market with a $600,000 ARV, $10,000 in back taxes, and $30,000 in renovations. Monthly holding costs are $3,000, and you plan to sell within three months, paying a 6% agent commission. Here’s the calculation:

Step 5. Renovate the property

It’s time to take “before” pictures, review the scope of work, and find the right contractors to get the job done.  Some tips for finding reliable contractors include:

• Start by researching and asking for referrals.
• Verify licensing and insurance.
• Review portfolios and interview candidates about project timelines, costs, and communication.
• Ensure the contract is clear on scope, payments, and any changes.
• Look for people who are communicative and open.

Managing the renovation

The entire process of overlooking the renovation will span over months and cover too many details to fit in one post, but word to the wise: whatever you do, don’t cut corners on safety issues and be generous about installing basic cosmetic items like lighting fixtures, carpets, and landscaping elements:

“You never want to have the most expensive house in a neighborhood — just the cleanest. Standard items should be consistent with those in neighbors’ homes. (…) When replacing major items such as furnaces, carpet, and roofs, it is not necessary to go with the best quality or grade. Do what is consistent with the neighborhood”.

From: The Business of Flipping Houses

Top 5 renovation tips to increase property value

When you have a rigid timeline to achieve maximum value, every hour counts. Discovering the most cost-efficient and profitable renovations is a separate game of investment, set on a smaller scale. Our recent video can help you choose which renovations to prioritize:

• Kitchen upgrades: A kitchen remodel can recoup around 96% of your investment, making it one of the best areas to boost property value. Even minor updates like modern fixtures and energy-efficient appliances can significantly enhance appeal.
• Bathroom renovations: Upgrading bathrooms can provide a 70% return on investment. Focus on neutral designs, quality fixtures, and energy-efficient features to attract buyers.
• Flooring upgrades: Investing in high-quality flooring can add $10,000 to your property value. Seamless, durable flooring makes the home appear larger and more cohesive.
• Additional living space: Finishing a basement or attic can increase home value by $20,000-$30,000, offering 80-120% ROI.
• Curb appeal enhancements: Exterior improvements like landscaping, fresh paint, and lighting can increase home value by up to $10,000 with a 200% ROI.

After looking at all of these upgrades you might think that going all-in and adding as many features as possible will maximize the property’s value. In reality things are not exactly as cut and dry: a successful flip seeks the golden middle between being over-rehabbed and under-rehabbed. 

• Over-rehabbing occurs when investors spend more than necessary, adding upgrades that aren’t required by the target market. While it’s tempting to over-improve in hopes to sell above market value, appraisals often don’t reflect these upgrades, and buyers may not be able to pay what you want.
• Under-rehabbing — failing to match the competition’s standards, usually in hopes to save money and time — can just as easily make it harder to sell the property. Ensure renovations meet market expectations and maintain consistency in finishes.

Step 6. Sell the property

Congratulations on making it this far! Now comes the final step — selling the property. To ensure a successful sale, you’ll need to focus on three key stages: marketing, showing, and negotiating.

Marketing

If you’re handling marketing yourself, allocate a budget for the campaign. Social media marketing can cost between $200 and $1,500, while offline advertising costs around $22 per 1,000 people reached. Ensure your campaign features professional photos or even a virtual tour for maximum impact.

Showing

• When potential buyers visit the property, pay special attention to the front entrance. Refresh the landscaping, declutter the house, and ensure plenty of light and fresh air. Let buyers take their time and imagine themselves living in the space.

Negotiating

Negotiating requires rapport, education, and persistence. Here are a few tips for strong negotiations:

• Negotiate in person whenever possible to build a connection.
• Be an active listener and focus on finding solutions.
• Ask questions to understand the buyer’s vision.
• Stay calm, document everything, and be prepared to walk away if necessary.

Conclusion

Just like a house needs a solid foundation, a successful house flip starts with a realistic understanding of the real estate market. This knowledge will guide you in creating a business plan, finding the right property, calculating your Scope of Work, determining your After-Repair Value, and more. Watching a damaged house transform into a livable home is deeply rewarding, but remember that securing a real profit is the ultimate goal. Be proactive during negotiations, keep your eyes on the prize, and sell.

…And then do it all again. After the deal is done, analyze what you could have done differently, gather feedback, and grow your fix-and-flip portfolio. In the end, persistence and market knowledge will be the key to your success.

Further reading

We’ve incorporated insights from some of the best real estate investing books out there throughout this article to give you a strong foundation. 

These books, along with the resources listed below, will help you continue your journey and expand your knowledge:

• Wealth Without Cash: Supercharge Your Real Estate Investing with Subject-To, Seller Financing, and Other Creative Deal by Pace Morby
• The Book on Flipping Houses by J Scott
• The Book on Estimating Rehab Costs: The Investor’s Guide to Defining Your Renovation Plan, Building Your Budget, and Knowing Exactly How Much It All Costs by J Scott‍
• The Business of Flipping Homes: Short-Term Real Estate Investing for Long-Term Wealth by William Bronchick and Robert Dahlstrom