You must have seen real estate investors who invest in homes, transform them after major renovations, and sell them for a profit.
Welcome to the world of house flipping.
Read on to look at what house flipping is, how it works and whether or not it is right for you.
How House Flipping Works
House flipping is a real estate investment strategy that allows investors to invest in a real estate property. However, that property is not intended to be used. Instead, it is purchased with the intention of selling the property for a profit.
Simply put, house flipping means buying low and selling high; however, instead of a buy and hold strategy, flipping is all about completing the cycle (buying and selling) as soon as possible to minimize risk.
As a result, the investor can generate a steady cash flow and profit by purchasing a single (or more) property and reselling it as soon as possible.
The overall focus is on speed instead of maximizing profit, as each day of property ownership means more cost for the investor (in terms of property taxes, insurance, utilities, and mortgage). The profit that is generated with house flipping comes from the price appreciation (especially through investment in hot neighborhoods) that is an everyday occurrence in the real estate market.
How to Go About House Flipping
House flipping is a quick and easy way to generate profits, but it isn’t something that you can get into overnight. Before you get into house flipping and doing it fast, you need to learn how to go about it.
Here’s how you can go about house flipping.
Start by Setting a Budget
Start by setting an adequate amount of funds to invest in the property. Here’s a pro tip, especially if you are house flipping for the first time. Make sure you set a big enough budget so you can find the right property.
Invest in a Hot Neighborhood
Do you want to maximize your profit through house flipping? Make sure you invest in the right property in a popular neighborhood because that’s where you will get the most appreciation of the price.
Decide on a Timeline
When you plan to invest in a property, around the same time, you should decide on a timeline for selling the property. It is one of the best ways to reduce your cost (and maximize profits).
Sell Your Property
In case the property you invested in needed repairs or significant upgrades, immediately following the updates, your house is ready for sale. You can either sell your property by yourself or can opt for a real estate agent. The latter option can help you find the right buyers that make the best match for your property.
Is Flipping a House Right For You?
While profit is one of the many drivers why investors opt for house flipping, it’s not the only benefit you get when you flip a house. There are several other benefits that you can enjoy.
House flipping makes a convenient way to maximize profit. In fact, many flips result in profits that are often higher than the median salary in the country. And that too in a short span of time.
You Get an Insight into the Construction Industry
If the property you have invested in requires upgrades, you also get a chance to closely work with the construction contractors, which also gives you an insight into the construction industry.
As a new investor, it is difficult to find the perfect property in the right location, which is why you may need to work with a real estate agent. However, once you get an understanding of how the property market works, you can better understand the trends and learn to take advantage of them.
You Develop a Buyer Mindset
An integral part of flipping property is that you develop a buyer’s mindset. When you understand what your buyer wants, you can invest in the right kind of property and maximize your profits.
While there are several benefits of house flipping, there are a few cons that you should know so you can decide on whether the house is right for you or not.
The Risk of Flop
Every investment comes with risk, and flipping houses is not an exception. Sometimes, you invest in the perfect property, but you may end up with a loss on your investment, and that’s something that you should be prepared for.
There Can Be Unexpected Costs
As an investor, you may have done your best to estimate the cost of the property, but there may be some unexpected costs that can affect your profitability. Moreover, you should also be prepared to pay for the holding cost and the taxes for the duration for which you own the property.
House flipping is not for the faint-hearted. It is a high stake investment and is therefore stressful as it involves taking bigger risks to enjoy even bigger profits.
If you are interested in learning more about house flipping, get in touch with an experienced investor. Remember, flipping houses is a business like any other. It requires enough information, extensive planning, and financial acumen to be successful. Call Bridgepoint Capital today at 207-281-3842 to start a discussion about you funding your project today.