Flipping Houses FAQs and Their Answers

According to RealtyTrac, the nation's premier real estate data firm that tracks house-flipping data, the house flipping market is soaring. And for good reason. Flipping a house is a short-term investment project that can net an average of $62,000 gross profit.

If you're interested in getting into the house-flipping game, there are a few things you should know first. Here are the answers to our most frequently asked questions about flipping houses.

Do You Need a Real Estate License to Flip a House?

No, but it might be beneficial to get one

According to Sarah V. Liska, Broker and Owner of Freedom Realty serving Maryland, Washington, DC, Pennsylvania, and Delaware, a real estate license offers home flippers several advantages.

"It is easier to acquire properties if you have a license because you have early access in the multiple listing database," says Liska. "There are also people who will offer you distressed properties directly if they know you are licensed."

The Multiple Listing Services (MLS) is a database that allows real estate agents to share information on properties for sale. The sellers get exposure for their properties, and the buyers get to see a comprehensive list of all MLS-listed properties. Only licensed real estate agents can access the MLS. 

How Much Money Can I Make Through House Flipping?

That depends on how much you buy a home for. 

As we noted above, the average net profit for flipping a house is $62,000. But all house flips are not created equal. The amount of profit you make will depend mostly on the price you pay on the front end. 

You should know about how much you can sell the house, post-renovation before you buy it. You simply have to look at the sale prices for comparable homes in the area. So the less money you spend when purchasing your fixer-upper, the more profit you'll get when you sell it. 

A good rule of thumb is to spend 70% of the after repair value (ARV) of a property minus the renovation costs. So let's say you think your house will sell for $300,000 once you've finished fixing it up. You estimate you'll need to spend $50,000 on repairs. 

                                                                                ($300,000 X 0.70) - $50,000 = $160,000

As you can see from our formula, you can afford to spend $160,000 to purchase that house. Now, when you sell the house for $300,000, you should make a profit of $90,000, minus any taxes, fees, or commissions you have to pay.

Do You Have to Pay Commissions If You Flip a House?

This brings us to our next point. Another perk of having a real estate license is that you save money on commissions. 

"Upon completion of a renovation project, should you choose to sell the property for a profit, you can save valuable commissions that may have been paid to a third party," says Liska.

What Laws and Regulations Should You Be Aware of Before Flipping a House?

It's important to know the laws pertaining to real estate and flipping properties if you're going to engage in this practice. Getting a license and taking real estate pre-licensing courses will help you get the education that will guide you on making the best decisions. 

"There is one caveat to these benefits," says Liska. "Once you are licensed, you are held to a higher standard based on the National Association of Realtors code of ethics and fair housing laws. By being licensed, you are accepting that you are expected to have more knowledge and care when selling. You must run a very tight ship!"

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