Do you need money to start flipping houses?

Flipping houses has become an increasingly popular way for many people to make extra income. The premise is straightforward: you buy a property that needs some work, renovate or repair it, and then sell it for a profit. With the right property and some DIY skills, house flipping can be a lucrative side hustle or even full-time business. But one major question for aspiring house flippers is – how much money do you need to get started?

Table of Contents

How much cash do you need to start flipping houses?

When getting into house flipping, most experts recommend having access to at least $25,000-$30,000 in cash to fund your first investment property purchase and renovations. Here’s a breakdown of where that money typically goes:

Down payment on purchase of the property – Many house flippers aim to put down 20% to avoid private mortgage insurance (PMI), but you may be able to put down less.
Closing costs – These fees include title searches, inspections, attorney fees, recording fees, transfer taxes, etc. Estimate 2-5% of purchase price.
Repair and renovation costs – The extent of repairs and updates needed will vary greatly, but budget at least 15-20% of the property’s purchase price.

Carrying costs – Plan for several months of mortgage payments, property taxes, utilities, and insurance while you renovate before selling.
Unexpected overages – Repair costs often run over, so leave a 10-20% buffer.

While $25,000-$30,000 is a reasonable baseline, keep in mind that fixer-uppers can vary greatly in purchase price and required renovations. A higher purchase price and more extensive renovations mean you may need closer to $40,000-$50,000 available. On lower-priced properties that just need cosmetic updates, you could potentially start with $15,000-$20,000.

Can you start flipping with less than $25k?

Is it possible to start flipping houses with less than the $25k minimum that most experts recommend? The short answer is yes, but it will limit your options and increase your risks. Here are some potential ways to get started with less cash:

Use personal credit cards – Many flippers leverage 0% APR introductory credit card offers to finance initial purchase and renovation costs. This can work but tread carefully – high interest rates kick in if balances are not paid off in time.
Partner with others – Team up with other investors and flippers to pool your cash resources and skills.

Seek private financing – Ask private lenders like friends, family or individuals willing to finance your flips at reasonable rates.
Use hard money loans – Hard money loans are available from specialized lenders at much higher interest rates and with short repayment terms.
Buy lower-priced properties – Consider very small studio condos or foreclosed homes that can be fixed up for $10k or less.

Relying solely on credit cards or high-interest hard money loans can be very risky. Partnering with other flippers and pursuing private financing from people you know may provide the extra capital needed to properly fund a flip. But working with very little cash on hand leaves you vulnerable should repair costs escalate or the flipping process drag on.

How much profit can you make flipping houses?

The profit potential on a house flipping deal primarily depends on two key factors:

Your purchase price

How much the property value increases from your renovations

Industry experts often cite the 70% rule as a guideline for profitable flips:

Purchase the property at no more than 70% of its after-repair value (ARV).

Keep renovation costs under 70% of the after-repair value.

For example, if similar renovated properties are selling for $200,000 in your area:

Aim to purchase the property for no more than $140,000.

Plan renovations of $100,000 or less.

That leaves $60,000 in potential profit from the flip ($200,000 ARV – $140,000 purchase price – $100,000 renovations). Experienced flippers often achieve much higher returns through good negotiating and keeping renovation costs low.

What are the costs to flipping a house?

The main costs involved in flipping houses include:

Purchase price – This will likely be your biggest upfront cost and determines your profit potential.
Closing costs – Estimate 2-5% of the purchase price for title, legal fees, transfer taxes, etc.
Loan costs – If financing, loan origination fees typically run 1-2%.

Repairs and renovations – Budget 15-25%+ of purchase price for makeover.
Holding costs – Mortgage, interest, taxes, and insurance during renovations.
Marketing and sales costs – Advertising, realtor commissions (6% typically).

Capital gains taxes – Federal capital gains tax up to 25% will apply on your net profit.

Unexpected costs can also pop up for issues like mold, termites, flood damage, frozen pipes, and faulty wiring. Thorough inspections help avoid big surprise expenses.

What renovations add the most value?

Certain renovations add more resale value than their costs, while others add little value. According to real estate site HomeLight, these are the top renovations for adding home value:

Renovation	Value Added
Minor kitchen remodel	102%
Full kitchen remodel	126%
Bathroom remodel	108%
Wood flooring	100-125%
Garage door replacement	97%
Entry door replacement	102%
Deck addition	80%
Attic insulation	127%

Key rooms like kitchens and baths provide the most value. But windows, doors, floors and good insulation also give big returns. Curb appeal improvements like paint, landscaping and updated exterior surfaces are important too.

Do you need good credit to flip houses?

You don’t necessarily need good personal credit to start flipping houses. Here are some options for financing flips without good credit:

Hard money loans – Asset-based loans that consider equity in the investment property rather than your credit score.

Private/portfolio loans – Some banks offer loans based on your rehab plan rather than credit score.
Transactional financing – Short-term loans covering one flip at a time.
Partnering – Join forces with an investor with better credit to secure financing.

All cash – Pool enough cash savings and private loans to purchase without needing a mortgage.

That said, qualifying for a personal bank line of credit with good credit (660+ score) can provide an affordable, accessible funding source for multiple flips. Loan options increase when you have good credit behind you.

How much cash reserve should you have?

Experts recommend keeping a cash reserve of 10-25% of your total project costs when flipping houses. This reserve funds unexpected overages and prevents you from needing expensive loans if repair costs escalate. Contingency funds to have on hand include:

5-10% for purchase overages – In case you need to bid higher than expected to secure the property.
10-15% for renovation overages – Repair and upgrade costs often run over budget.
5-10% for holding costs – Buffers mortgage, interest and other carrying costs during renovations.

5-10% for closing and sales overages – Covers higher than expected closing, marketing and sales costs.

A 15% contingency fund on a $300,000 flip would be $45,000. Proper planning and diligent cost tracking can help avoid tapping reserves, but sometimes overages are unavoidable.

Can you flip houses part-time?

Many people get started flipping house part-time while keeping their regular job. Key advantages of part-time flipping include:

Keeping a steady source of income from your job.
Gaining experience without the pressures of relying on flips for all your income.
Ability to be more selective on deals with less pressure to flip quickly.

Starting small and testing your skills on lower cost properties first.

However, part-time flipping does have some disadvantages to consider as well:

Very limited time available to find, evaluate and execute deals.

Overseeing contractors and renovation process can be difficult with a day job.
Harder to scale up significantly without doing flips full-time.
Still need sufficient capital even for part-time flipping.

Many successful flippers start part-time and eventually transition to flipping houses full-time once they build experience, capital and their pipeline of deals. Starting small also minimizes your risks.

Do you need a license to flip houses?

In most states, you do not need a real estate license simply to purchase, renovate, and resell a home for yourself as a house flipper. However, if you do any of the following, a real estate license is required by law in most states:

Represent the buyer or seller in a transaction and collect commission

Buy and sell several homes per year under different business entities you own
Show homes as “for sale by owner” and collect buyer inquiries
Act as an agent by negotiating and representing deals on behalf of others

So for most house flippers who buy, renovate, and resell properties in their own name a license is not legally required. But working with a good real estate agent on both ends of your flips has many advantages.

Do you need an LLC to flip houses?

Creating an LLC (limited liability company) for your house flipping business is not legally required in most states, but it has some key advantages including:

Protection from personal liability – Flipping under an LLC shields your personal assets if sued.

Tax advantages – LLC income can be structured different ways for optimal taxes.
Credibility – Operating under an official business looks more professional.
Separate finances – Keep business and personal banking/accounting separated.

There is some added administrative work and costs for creating and maintaining an LLC. Overall most serious house flippers find the liability and tax benefits worthwhile.

Conclusion

While flipping houses can be very profitable, sufficient startup capital is needed to cover your purchase, renovations, carrying costs, and reserve funds. Most successful flippers recommend having $25k-$30k minimum to start, with more needed for higher-priced properties or more extensive repairs.

You can potentially start flipping with less cash by leveraging credit cards, private financing, or partnerships – but take on much higher risk. Solid cash reserves, thorough cost planning, and conservative deal analysis are key factors for minimizing risks on your first flips. Many investors start small flipping part-time while keeping their regular job until they build skills, capital, and a pipeline of profitable deals.