The real estate industry has flourished in recent years, especially when it comes to earning revenue. Aside from becoming a professional real estate agent and help people buy or sell homes, there are other opportunities to gaining income. Today, we’ll focus on a topic called flipping houses – one of the basics of property management.
First off, how do you flip a house? Turn it upside down??
This is a kind of business move that involves a real estate investor buying a property at an auction or foreclosure sales. These are homes that have been put up for foreclosure as their previous owners were not able to pay for the mortgage and so the lender will put up the house for sale. Usually, they will sell it for a lower value so long as the buyer (in this case, you) can meet the mortgage value. You see this on many shows such as “Fixer Upper“.
By buying the property for way less than the market value, you can upgrade, fix any issues, and resell it more than what you have paid for and you will gain income from that. Many investors are actually joining in the industry and gaining a lot through this.
For example, you have bought a property that is 70% of the market value including renovations. After making it look presentable for the market, you can sell it for 90%. That means you will get a profit of 20% and that 20% of 70% invested is 28% returned. The whole process often takes 9 to 18 months depending on the state of the property.
While the biggest advantage is that you can gain a lot of money, it can also be one of the riskiest ventures. One mistake or miscalculation could make you lose everything.
For example, estimating a property to be around $60,000 and spending around $20,000 for the renovations is a total of $80,000. However, it turns out that the house is actually just around $50,000. That means you have already lost.
Apart from that, forgetting to check the title can lead to several problems. Some titles are not clean and you will likely have to pay thousands just to get that.
House flipping takes a lot of work. You will need someone to research the properties and then determine what the values are. This will mean they have to investigate it and appraise its value. If you have a team of experts, you need a reliable real estate that knows how to appraise a property. This is how you’ll decide whether to buy the house or move on to another one.
You also have to see whether it has a reasonable state. As much as possible, avoid properties with major renovations or where you’ll undertake the renovation. This will make you spend more and will double the time of making it available. Then check the title and see if you have a clean deed or what the problems surrounding it are.
Lastly, know your market. If you don’t have a good understanding of the market, you’re probably running wild. You will never know whether you got a great deal or you’re just wasting your money.