However, is it, really? Find out in this article about the intricacies of house flipping, and how to go through it like a pro and come out richer.
What is House Flipping?
House flipping is the process of buying a home at a lesser price, making a couple of improvements on it, and then selling it for short-term profit. The main objective of flipping houses is to buy low and sell high within a short period for profit.
Another method of flipping is when an investor buys a property, waits a while until the property appreciates with little or no repairs, then sells. This is called micro flipping.
Benefits of Flipping Houses
There are certain rewards to house flipping for real estate investors. These rewards would typically override the risks and make it a very profitable venture. They are:
Flipping is an easy way to make a high profit off your investment. This profit could go higher or lower, depending on the trends in the local real estate market that you choose to invest in.
You could contact a professional, such as a real estate agent to give you insights into the neighborhoods or buildings that would give you a high return on investment (ROI).
Faster Return on Money
Typically, investing in real estate fixed assets implies that you have got your money tied down for at least a year.
However, flipping houses affords you the opportunity to invest and make a profit in a shorter period.
The average time to buy, renovate and flip a house is six months, and this timeframe is even shorter for microflipping.
Flipping a house is a pretty safer investment because your capital is kept for a short time.
Also, it saves you the stress of having to look for tenants, collect rent and maintain houses long-term.
Part-time or Full-time Job
House flipping affords investors a flexible schedule. You can take as many flips as your time permits. For investors looking for a full-time means of employment, flipping houses could serve as one.
Likewise, it is also good for those who are only looking for a secondary means of income.
How To Finance A Flip Property
Flipping properties require a high amount of capital for purchase and renovations before sales can be made. To do this, an investor has to ensure that he has a reliable source of financing.
Real Estate Finance for property flipping can be gotten in the following ways:
If you do have the capital needed to purchase a house and make the necessary repairs on it, and you are convinced that you would do well financially without the money, then it is advisable to fund your investments out of your purse.
This will prevent you from going into debt, and help you save the money that you would have otherwise spent on interests. However, ensure that you do not use money set aside for important purposes, such as your kids’ education funds.
Hard money loans are short-term loans with high-interest rates -ranging from 8-15%- given by private money lenders. With hard money loans, the amount of money you get is not determined by your credit score.
They are a good choice for investors who only need some short-term cash to buy a property. However, ensure that whichever lender you are working with is a legitimate one.
Home Equity Loan
A home equity loan lets you get a loan by using your home as collateral. This is quite risky because if you fail to pay back the loan, you could lose your home.
However, since house flipping does not take a long time, you could go ahead to take this loan and repay it after selling the flipped house.
Step-by-step Guide to Flipping Houses
Flipping houses is not as easy as they make it look on TV. Not only do you need a working knowledge of how the real estate market works, but you also need to get other things to ensure that the process goes hitch-free.
Here is a step-by-step guide to flipping houses:
Create a Budget
Before you decide the kind of house you want to purchase for flipping, you first have to make sure that you have a realistic budget and a means of financing the project.
This is important to ensure you do not go above the available funds you have before completing renovations. In creating your budget, consider the following:
- Purchase price
- Cost of repairs
- The 70% rule
If you need some help creating this budget, you could hire the assistance of a Real Estate Accountant.
Find the Right Property
Once your budget is set, the next step is finding a property that fits right into that budget.
Go through foreclosures, auctions, and short sales around you to discover the best ones for you.
If you need professional help in this search, recruit the services of a real estate agent.
Set a Timeline
One of the greatest benefits of house flipping lies in its timelines. Stipulate a reasonable period for yourself, within which you must have finished with all necessary renovations and be ready for sale.
This helps keep you on your toes until the completion of the project.
Prioritize The Most Important Renovations
The main purpose of renovating a building is to increase the value, and so any renovations that you carry out should perform this function.
Focus on the most important renovations first, and while you are at it, make sure that you stay within budget.
Here are a couple of renovations you should prioritize:
- Increase space and add more light
- Upgrade the kitchen area
- Modernize the bathroom
- Repaint walls and replace worn-out tiles
- Clean up the exterior
Sell Your Property
After making all necessary renovations, you can now put your property up for sale. Although you could do this yourself, engaging the help of a real estate agent could help you sell quicker and for a reasonable amount of profit.
House flipping is not exactly something that you jump into without making adequate preparations, except you want to run at a loss. Generally, it is advisable to start small before going in full-time. Follow all of the tips and steps discussed above to guarantee yourself a safer investment process with high returns.