One of the rising stars when it comes to real estate investing is called “flipping” a property. This method is done by purchasing properties that need minor cosmetic repairs or need serious renovations, performing the work, and then selling the home at a higher price. In theory, this brings in a large profit in a fairly short period of time. This is the case for many people who are trying to flip properties, but it takes a little more than an idea to make the process work. For this reason, there are many people who end up sacrificing profits or losing money in the process if they don’t plan well.
If you are considering a future real estate investment, this is one of the quickest ways an investor can achieve profitability. It is also a way to bring in high profits in a short amount of time. Unfortunately, this once closely guarded secret has gained a degree of notoriety, and competition for undervalued properties in the market is fierce as more and more investors decide to join the collective ranks.
If you are considering real estate investing in general, and home flipping in particular, there are a few things you should keep in mind.
1) Treat it as a business, not a hobby. Too many investors don’t take their investments seriously. This is a mistake because in this business, time is money and a house that doesn’t sell every month is a house that is costing you money. Create a plan, set a schedule, and stick to both.
2) Remember, this is a business. You are not investing in real estate to make friends or look good. You are in this business to realize a profit. You can’t afford to be timid about offering low prices. The ability to buy low and sell high is the lifeblood of this particular industry. This means you’re likely to hurt someone’s feelings and make them angry (because they often put an emotional price on their home that simply isn’t financially viable). If you can’t handle this reality, then you will have some degree of difficulty getting the high profits you seek. Good people do it to the end, and in this business you really can’t afford to do that.
3) Pay attention to the market. This is very important. Many “flippers” have lost their shirts in the recent near collapse of housing markets across the U.S. The truth of the matter is that the metrics have been building for years. In cities that once lacked viable housing options, there is now a glut. This has not driven down the value of properties, but has brought them back to their proper value. Investors who expected to be able to sell for more than the properties were actually worth were left with a bag (or note) of these properties for quite some time until they could be sold. Some never manage to sell these properties and are left to deal with this expense in addition to the cost of upgrading. Don’t buy in an inflationary market if you can avoid it, except in the early stages of inflation (before the real estate developer has a chance to create a surplus).
4) Don’t make it personal. Too many first-time real estate speculators decide to create a work of art rather than a business investment. It’s tempting to go ahead and create a dream home while cosmetic and structural repairs are being made. The problem with doing this is that, depending on the particular market, you are unlikely to recover the cost of doing so. Our goal is to make a small investment and a large profit. Granite countertops are lovely, but simply not necessary in a community full of humble means. Cater to the tastes and budgets of your target market, not your personal tastes.
Despite the risks associated with flipping houses as a real estate investment, there is no denying that fortunes have been made doing so. Even in the current housing market, there are great prospects for those who can get the job done quickly and inexpensively. People still want to buy these lovely homes rather than purchasing a home that needs to be remodeled after the purchase price.