Flipping houses can be profitable if done correctly, and many individuals as well as institutions do it successfully every year. According to RealtyTrac, Flipped homes accounted for around 4.5% of overall home sales. Overall, investors completing these sales generally did well with average gross profits reaching 35.9% of original purchasing price. While many of these flippers did extremely well there are a few challenges that can trip up even professional and experienced investors.
The potential for strong returns has drawn many people toward real estate and, in particular, flipping properties, but these solid returns are not easy to obtain. Getting a sound property at a great price is the first challenge that investors need to overcome. Flippers will need to choose properties carefully in order to get the returns they are looking for.
The first step for an investor would be to determine the market he/she wishes to enter. Major cities across the country have historically rewarded investors with the highest returns, with San Francisco dominating the national market with largest gains per flipped home. In order to determine which cities and specific neighborhoods are most desirable and profitable, it is essential to stay up to date on real estate trends and subscribe to periodic real estate reports.
When an attractive property at a low price gets put on the market it is typically purchased quickly due to strong demand from other investors. This makes it necessary for potential flippers to focus their energy on getting the financing they need as quickly as possible, and at an affordable cost of capital.
While traditional home loans are an important part of financing a flip, they are usually not enough. Traditional home loans will typically cover around 70-80% of the cost of acquiring the home, but not the rehabilitation costs associated with fixing up and repairing the home. Interactive Shares provides financing for both acquiring the property and making the repairs necessary to flip the home.
You Have to Buy at WELL Below the Prevailing Market
To make money flipping homes you must buy them at deep discounts. This step should never be taken lightly. If you think of the ultimate selling price of the property as its retail price, the price that you are paying should be seen as the wholesale price. The difference between the two must provide a sufficient profit, plus room to cover property renovations.
In successful rehabs the flipper will typically invest a relatively small amount of money into repairs that increase a properties value to the point where it can be sold for substantially more than the cost of purchasing it and making the repairs. This means keeping costs down, and not undertaking unnecessary repairs. Many repairs that an investor might make in his or her own home are better left unchanged in an investment property.
Even experienced investors will sometimes run into the trap of spending too much on making repairs that do not increase the value of the home by more than the cost. Maintaining the landscape, creating space by removing non-structural walls, and incorporating neutral wall colors throughout a home all serve to both boost the home’s value and reduce its time on the market.
By choosing carefully where they will devote resources, flippers will have an easier time profiting during a sale.
Even when the economy is strong, selling a home can often take a lot of time. When flippers purchase a house without a backup plan they can quickly see their profits disappear if the house goes unsold for too long.
Turning a property from a flip into a rental may give investors an alternative way to profit from a property that is not selling. Experienced investors understand that renting can sometimes be a more profitable strategy than flipping, and that flexibility is a key attribute for success.
While flipping houses can provide solid returns, investors must keep in mind the potential danger, risks and pitfalls that they may run into.