The Real estate business can be quite a glamorous one. Stepping into lavish properties every day, meeting high profile clients, making million-dollar deals, is not something that everybody gets to experience. But one shouldn’t be carried away by the quick riches as it is also one of the most nerve-racking and risky businesses.
A concept that is gaining momentum apace is house flipping. CNBC reports that more people are shifting towards becoming full-time real estate investors by flipping houses. In the last ten years, more properties have been flipped than new ones were sold. The expectation of earning lucrative rewards is what drives people.
What do we mean by House Flipping?
To put it simply, it is all about buying properties at a cheap rate, doing some renovations, and selling them back at profit-making prices. But it is not as simple as it sounds.
What could go wrong?
You spend a huge amount on buying a property and spend another substantial amount revamping it. You put it on the sale, but nobody wants to buy it. You have the risk squander a massive amount of funds. Also, pay for the property taxes on top of that as long as you keep the house.
Renovation takes time, but the market shifts are swift. By the time you complete your renovations, the demands may change. The value you thought you were adding to the property may lower down to non-existing. It is a troublesome situation.
Also, the competition is getting hot. Since more people are investing now, the profit margin is slowly shrinking. Private lenders are having a win here.
So how can you expect to make greater profits?
House flipping has some important elements to be taken care of. For instance, the purchase price, reconstruction or repair cost, the value after the repair, and the budget. Having a good balance of these elements will alleviate profits. Here are a few tips that you should follow to avoid bad flipping.
- Do a property valuation– This is one of the most crucial steps before flipping. Property valuation will allow you to know the real value of a building. Doing this before repairs will help you chalk out the things that are needed to be changed or improved. It will also give a legitimate estimation of the house value after repairs (ARV). When dealing with big investments, there is no point in assuming the numbers. Rather than going with the market price, do a complete property valuation by property valuers.
- Set high goals– If you want to make high profits, you also have to aim for high-value projects. Better homes with higher prices will earn you a higher profit margin. So build up your funds accordingly. Build a high credit so you can avoid taking loans. Especially, because the interest rates are pretty high and you wouldn’t want your money to go out on that. Plus you will have a low credit score that will allow you to take loans when you desperately need it. Look for cities where the real estate prices are soaring. Even if this process takes a long time, it will reap you benefits.
- Renovation at its best – You will have to learn about different techniques to renovate within a limited fund and also put amenities that are in demand. You have to make a smart move. Be unique but at the same time stick to market needs. If you make unnecessary changes that do not add up to the value, then the expenditure is not worthy. Focus on what the buyer would most probably want. Try to decrease the renovation time.
- Adhere to the budget– This is where most flippers slip. In a spree to offer the best property in the area, it is easy to go out of the budget and make the expenses. You don’t know if your property is going to sell unless you are putting it in the market to minimize financial risk as much as possible.
- Avoid overpricing– At this point, you have done the math, you know the exact value of the property. In temptation to earn higher profits, do not put a higher price tag as this will repel your potential buyers.
House flipping can be a smart way to generate high incomes, but not many people can get a grasp of it. It requires an enormous amount of insightfulness and patience to reach the riches.