House flipping is a popular strategy in the real estate industry, where investors purchase a property to renovate it and sell it for a profit. This practice has gained widespread attention in recent years due to the numerous reality television shows highlighting house flippers’ successes. While it may seem easy to make a quick profit, flipping a house can be a complex and challenging endeavor requiring significant skill, knowledge, and experience. In this blog, we will explore house flipping in real estate. It includes the benefits, the steps involved in house flipping process, and some tips and tricks for success.
Whether you are a real estate investor or just a reader, this guide will provide valuable insights into how to get into flipping and help you make informed decisions on your next investment.
What Is House Flipping Actually?
Flipping is a pure real estate investment strategy in which investors purchases properties, renovates it, and then sells it for a profit. House flipping aims to buy at a low price, make strategic renovations to increase its value, and then sell it quickly for a higher price.
Successful house flippers are able to identify undervalued properties, accurately estimate renovation costs, and execute renovations that will increase the property’s value enough to make a profit when sold.
Advantages of House Flipping
There are various advantages of flipping from making profit to diversifying investment and increasing value of neighborhood at the end. Let’s look at some advantages of house flipping:
House Flipping Can Be Profitable in a Limited Amount of Time
A clear advantage of flipping is to renovate and resell some homes can be repaired and flipped very quickly and have great potential for profit. The average profit margin of a successful renovation and resale transaction can be quite high, which is often a big win for the amount of renovation work that may be required.
Another advantage is the possibility of earning a large margin on the property while completing the turnaround in less than 90 days. It can accelerate selling properties in limited times. This is good not only for sellers but also for buyers to not affect price change quickly.
House Flipping May Help to Revitalize Neighborhoods
The revitalization of neighborhoods can be aided by flipping homes, which involves buying distressed properties or those from distressed sellers and renovating them for resale. This practice helps address the issue of lower property values and offers a unique opportunity to solve someone’s shelter problem while generating a significant profit and building wealth.
You Can Select Your Flipped House According to Your Needs and Expectations
As a real estate investor looking to flip homes, you have the opportunity to carefully select properties that meet your desired criteria, such as location, sale price, financing, and property type. By doing so, you can target properties priced below their market value due to their current condition and require significant renovations to unlock their full potential.
To minimize your initial expenses, choosing a property that needs a relatively small cash down payment at purchase is wise. The beauty of flipping homes is that you have complete control over these factors before starting the renovation process.
Five Basic Steps to Flip a House Without Burden
If you do not want to face with any problem during flipping business, you may follow some flipping advice below:
- Identify the right property: Look for distressed properties that require renovation but can increase in value with improvements.
- Secure financing: Determine how much money you need and how you plan to finance the purchase and renovations.
- Renovate the property: Make necessary improvements to uplift homes’ value and appeal to potential buyers.
- List the property: Work with a real estate agent to list and market the property to attract potential buyers.
- Sell the property: Once a buyer is found, close the sale and collect your profit. Then, consider reinvesting the profits into another flipping opportunity.
What Is the 70% Rule in House Flipping?
The 70% rule in flipping is a guideline that states that an investor should not pay more than 70% of a property’s after-repair value (ARV) minus the cost of repairs. The rule helps investors calculate the maximum amount they should pay for a distressed property to ensure they can profit when they sell it after renovating it.
To use the 70% rule, investors calculate the estimated ARV of the property after repairs are made, subtract the estimated repair costs, and then multiply the result by 70% to determine the maximum purchase price they should pay for the property. On the other hand, you need to consider duration of house flipping and taxes. If the process takes long times, house flipping can not be worth it at all.
While the 70% rule is a practical general guideline in house flipping, it is essential to note that every property and market is unique. Therefore, before purchasing any property for flipping, it is crucial to conduct thorough research of market conditions and seek advice from real estate professionals to obtain a more precise estimate of potential resale value. These steps ensure the investment is sound and will generate a profit.
5 Common Misunderstandings About House Flipping
Common mistakes conceal what flipping actually is and how it works. Therefore, we have enlisted five common misunderstandings about flipping.
- Flipping is easy money: Flipping involves a significant amount of work, risk, and financial investment. Therefore, it is not a guaranteed way to make quick and easy money.
- Flipping houses is a get-rich-quick scheme: Flipping houses requires a lot of time, effort, and expertise. But, as a result, it could be a faster track to wealth.
- You can’t lose money in flipping: Many risks, including unforeseen repairs and market fluctuations, can result in financial loss.
- You don’t need a team: A successful flipping requires a team of professionals, including contractors, real estate agents, and lenders, to ensure the project is completed efficiently and effectively.
- Flipping houses is only for experienced investors: While experience can be helpful, anyone can successfully learn the skills to convert a house with the right resources and education.
Flipping can be a wise investment strategy for those willing to invest the time, effort, and financial resources required to succeed. However, it is crucial to understand that house flipping is not a get-rich-quick scheme and involves a certain degree of risk. Success in house flipping requires careful research, planning, and execution, along with the support of a qualified team of professionals. Nevertheless, with the right strategy, skillset, and mindset, flipping can allow investors to generate significant profits. Moreover, it builds long-term wealth in the real estate market.