There are many ways to make money with real estate, with millions of people using residential or commercial rental properties to generate extra income. It's also possible to make money simply by selling a house for more than you originally paid for it. House flippers take this concept to the extreme, frequently buying, fixing up, and reselling properties for fast profits and snowballing returns.

But what does it take to be successful with this promising, yet controversial strategy?

The Potential of Flipping Houses

Flipping houses is highly attractive on the surface. The idea is to buy a house for a relatively low price, make renovations and repairs, and sell the house for more than the total cost of purchase and rehabilitation. Sometimes, this process is quick, unfolding over just a few months. Other times, house flippers attempt to hold the property for months to years before eventually offloading it.

Either way, this strategy is potentially lucrative because of its snowballing potential. The money you make from the first purchase can easily fund a second and potentially even a third. As you continue, you may choose to hold properties with impressive rental potential, making even more money in the process. With even limited startup capital, it's possible to make a fortune in a decade or two, provided you put in the work.

The Risks and Drawbacks

Of course, there are some risks and drawbacks to consider.

•      House issues. Choosing the wrong home to purchase can instantly ruin this strategy. If you choose a property in a bad neighborhood, it may not have much appeal to buyers. If you choose a property with too many issues, you may not be able to fix it affordably. And if you pay too much for the property, you may struggle to make back what you paid.

•      Work issues. It's also possible to run into issues during the renovation process. If you discover unexpected issues that jeopardize the project, its potential profitability will tank. If you spend too much on repairs, you may not be able to recoup the costs. And if you end up with a money pit, there could be practically no end to the repairs you have to make.

•      Sale issues. Even if you are successful in finding a good property and fixing it up, you may run into issues with the sale. Effective marketing is crucial, and even then, there's no guarantee your house will sell quickly or for asking price.

What Does It Take to Be Successful Flipping Houses?

Knowing this, what does it take to be successful flipping houses?

•      Initial capital. Before you can get involved with flipping houses, you'll need some startup capital. You can take out a loan to buy your first property, but you'll still need a down payment before you can secure that financing. Additionally, you'll need ample funds on hand to pay for all the repairs necessary to put the property in better condition. You should also put together an emergency fund – a pocket of capital that you can draw upon in an emergency, like if you discover an unexpectedly necessary repair.

•      Knowledge and experience. The biggest predictive factors for success in flipping houses are knowledge and experience. Real estate experts who have had years of experience buying and selling houses are at a marked advantage over newcomers with limited familiarity. If you're new to this world, it's a good idea to work with at least one other expert who can show you the ropes.

•      A pipeline of potential deals. Finding good properties for flipping can be hard, especially with other aggressive property flippers in your area. If you want to be successful, you'll need a reliable pipeline of potential deals. There are many ways to establish this, such as by offering to buy houses in cash in networking with other real estate professionals.

•      Connections to contractors. Even if you consider yourself handy, there are some jobs you won't be able to do yourself. Accordingly, you should start building a network of connections to professional contractors. Bigger, more robust networks give you access to a broader range of skills and potentially lower prices for everything you need to accomplish.

•      Patience and perseverance. Even with a ton of innate advantages, flipping houses can be difficult and time-consuming. You could face disruptions in the form of rehab projects that demand more than you expect, inventory issues, and even random market fluctuations. You'll need patience and perseverance if you want to make this strategy successful.

•      A backup plan. Even if you’re not big into investing, you’ve likely heard the advice to diversify your portfolio. The idea is to hold many different types of assets, just in case one of them fails or unexpectedly declines. In line with this idea, flipping houses should never be your exclusive source of income or wealth accumulation. Put a backup plan in place – and be willing to pursue alternative investments to hedge and stabilize your holdings.

Flipping houses is a potentially lucrative real estate investing strategy, but it's not for everyone. In fact, it's arguably not for most people. You'll likely see much more stable, predictable returns through acquiring and managing rental properties. Still, there are aspects of flipping houses that are definitely worth considering, and if you have the knowledge and experience, it could be an even better fit.