This is my strategy for flipping houses successfully. It focuses on slow and steady growth while providing experience and an understanding of the industry.
Tortoise House Flipping
As the sub-title suggests, my method of flipping houses is slow and steady. It is designed to accomplish three goals: first, make money relatively fast; two, provide the house of your dreams (if you want) in four to six years; and three, avoiding tax penalties that can be associated with flipping properties. It is true that under this method you may need an alternative income source, at least at the beginning. But without that day job, there would be no time to daydream about that new tile going in, or selling that flip for a huge profit, right?
Using this method is easy. First, find a flip that only needs minor, cosmetic, and/or non-structural fixes. For example, new paint, tile, counter-tops, carpet, etc. This is important because doing some of the work on your own is expected (don't worry, you will have the time to do it). Also, when searching for a property, pay very special attention to the exterior. If paint or new flowers, or ripping out an old tree stump would transform the flip, take note of that. It is these changes that while small to you will have a profound effect on your buyer.
Also, when searching for flips, stay in the market of something a new or second/third home purchaser could afford. New homeowners, or second or third owners know what they want but don't have outrageous expectations. They may want granite and marble in their house, but they are willing to economize and get something of a slightly lower quality that still looks good.
After you find and buy the flip (strategies on this to be discussed later) you will move in and start the improvement process. That's right, I said you will move into the flip. Why would you do this? Two reasons. First, if you live in a flip for two years it is a residence and subject to only 15% capital gains tax (versus 35% if you don't) on your profit. The other reason is you will be doing a lot of the work on your own (whatever you can do) so you should live there while doing it. See, flipping houses successfully is easy!
Don't freak out though. When flipping under this strategy you will be able to live there hassle free. The trick is to move room to room, completing one at a time (painting for example) until you have a great looking flip that is worth a ton of money. If you have another job it will take time to do this. Believe it or not, though, you can usually prep and paint a room in a weekend easily. You just have to get going!
Once the flip is done and sold, take all the money you made, and go on to the next flip. The key here, though, is if you move laterally (buy a house of the same value as your original flip), you should have enough equity built into the flip that you can use that to improve your new flip. So, no money comes out of your pocket, you get the second flip looking great, sell it for a ton of money, and get the next property. Eventually you have enough coin to buy flips with cash!