Common Terms Every Aspiring House Flipper Should Know - Home & Texture
Homeownership House Flipping Terms

These Are the Common Terms Every Aspiring House Flipper Should Know

Master the language of house flipping and get ready for your first project.

By
June 24, 2024 at 5:48 PM PST
Homeownership House Flipping Terms

These Are the Common Terms Every Aspiring House Flipper Should Know

Master the language of house flipping and get ready for your first project.

By
June 24, 2024 at 5:48 PM PST

Flipping houses is the Wild West of real estate: thrilling, risky, and occasionally full of surprises. If you’ve ever watched a house-flipping show and thought, “I could do that,” you’re not alone. But before you grab your tool belt and sledgehammer, it’s important to know the lingo. Understanding the common terms in house flipping can save you time, money, and maybe a few gray hairs. So, here’s how to make sure you’re speaking the right language.

ARV (After Repair Value)

ARV is your holy grail. The after repair value is the estimated value of a property after all the renovations are complete. Think of it as the “glow-up” value of the house. This figure will help you determine if the flip is worth your time and investment. For example, if the ARV isn’t much higher than what you’re putting in, you might want to reconsider buying that fixer-upper.

Photo credit: monkeybusinessimages

Fixer-upper

Speaking of fixer-uppers, this term refers to properties that need a little—or a lot—of TLC. These homes have potential but require some elbow grease to bring them up to snuff. Fixer-uppers are the bread and butter of house flipping. Just remember, what looks like a “charming handyman special” might also be a “money pit in disguise.”

Comps

If only this meant free drinks at a casino. In real estate, comps, or comparables, are properties similar to the one you’re considering flipping. They help you gauge the market and set realistic expectations for your ARV. When analyzing comps, consider the location, size, condition, and amenities of similar homes that have recently sold in the area. It’s like comparing apples to apples but with a lot more dollar signs involved.

Scope of Work

This is your game plan, your blueprint, your to-do list on steroids. The scope of work outlines all the repairs and renovations needed for your flip. It includes everything from minor cosmetic updates to major structural overhauls. Having a detailed scope of work is crucial to keep your project on track and within budget. Without it, you’re just swinging a hammer in the dark.

Hard Money Loan

If you don’t have a pile of cash lying around, you might need a hard money loan. These are short-term loans typically used by house flippers to finance the purchase and renovation of a property. They come with higher interest rates than traditional mortgages, but they’re faster to secure. Just think of them as the credit cards of real estate: convenient but with a higher price tag.

Photo credit: FreshSplash

Sweat Equity

This is the DIY lover’s favorite term. Sweat equity refers to the value you add to a property through your own labor. Whether you’re painting walls, installing cabinets, or landscaping the yard, your hard work can significantly boost the property’s value.

As-is

When a property is sold “as-is,” it means the seller isn’t making any repairs or improvements before the sale. What you see is what you get, including all the leaky faucets, peeling wallpaper, and that suspicious-looking stain on the ceiling. Buying as-is can be a gamble, but it often comes with a lower price tag, which can be appealing for flippers looking for a project.

Holding Costs

These are the expenses you incur while owning a property that’s waiting to be flipped. Holding costs can include mortgage payments, property taxes, insurance, utilities, and maintenance. The longer you hold onto a property, the more these costs can eat into your profits. So, it’s in your best interest to flip it fast—but not so fast that you cut corners.

Photo credit: skynesher

Contingency

No flip goes exactly according to plan, and that’s where your contingency budget comes in. This is your financial safety net for unexpected expenses. Whether you discover termite damage, a faulty foundation, or that the previous owner was a secret hoarder, having a contingency fund can save your flip from turning into a financial flop.

Staging

Staging is the art of making a property look its absolute best before listing it for sale. This can involve renting furniture, adding decorative touches, and generally making the home look like it stepped out of a magazine. Staging can help potential buyers envision themselves living in the space, which can lead to faster sales and higher offers. It’s the real estate equivalent of a first date outfit—make a great impression.

Closing Costs

These are the fees and expenses you pay at the end of a real estate transaction. Closing costs can include loan origination fees, appraisal fees, title insurance, and more. It’s important to factor these costs into your budget from the start, so you’re not blindsided when it’s time to seal the deal.



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