Flipping Real Estate for Profit

A popular short term approach to investing in real estate is commonly called flipping real estate. A flip means buying a property then turning around and selling it for profit within a short time frame. In a hot real estate market this can be a very feasible method of investing. Properties are appreciating in value very quickly as high demand from buyers drives the market higher. In a slower market it can be very risky as it is herder to find buyers and to sell at a higher price than the purchase price. This type of investing requires experience and a thorough understanding of the values of real estate.

Finding Real Estate to Flip

To ensure a successful and profitable flip, the property must be purchased at a low enough price to enable selling it for more later. This will require a thorough search to find real estate that may be below market value. Sometimes sellers may not have a full appreciation for the value of their property and may have set a low asking price. These require constant monitoring of the market to discover these bargains before they quickly disappear.

Foreclosure properties can often be purchased at below market value. These can be purchased from the homeowner before the bank enacts the foreclosure. Upon foreclosure they can be purchased at the public auction, though this requires significant capital as you must pay in full immediately after the auction. At auction, it is usually the bank that purchases the property in order to resell and recover the amounts owing on the loan. These foreclosure properties can then be purchase from the bank at significant discounts.

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Another opportunity is real estate that needs upgrading and renovation. These may even be purchased at current market value while still having room for profit. The profit opportunity exists in spending the money to upgrade the property an place it in a higher market price range. Though these expenditures must be below the price difference from purchase price to the potential sale price.

Renovating for Profit

There may often be many properties on the market that could benefit from an upgrade through renovation. The right renovations can modernize an older home with dated styling and increase its value and attractiveness to buyers. The idea is to create a more desirable home that people will be willing to spend more for.

The level of renovation needed will be different for every property Some homes may simply need a paint job and new carpets. Other may require tearing down walls, to open up the space, new kitchen cabinetry, counter tops, and appliances, flooring, windows and doors, etc. The key is to asses each property to determine what it needs, how much those upgrades would cost, and what the potential market value would be of the completed project.

Sell Privately to Minimize Expenses

For most investors looking to flip a property it may be essential to sell it privately without having to pay the added costs of realtor commissions. These commissions can wipe out a significant amount of the potential profit. Selling privately can be difficult at times, especially in a slower real estate market, but it is not hard or expensive to do significant amount of marketing of the property on your own. Advertising the property in newspapers and online can get the home viewed by many potential buyers. This could save tens of thousands of dollars so it is well worth a little work.

Risks in Flipping Real Estate

Flipping real estate can indeed be risky. You are essentially speculating that the market will allow you to sell at a higher price in a short period of time. This may not always be the case. Hot markets can cool off suddenly leaving you stuck with real estate you either cannot sell, or not sell at the price you wanted. You should always have a backup exit strategy should the market not go higher as expected. You could cut your losses by selling at a lower price, or rent the property out so that the rental payments cover the mortgage till you are able to sell.

Other risks include escalating renovation costs and unforeseen maintenance problems with the property. The nightmare of every renovation job is to open up walls and floors, only to discover major issues, such as electrical wiring or plumbing systems that are severely inadequate, or rotting floor joists or wall supports. To help avoid these pitfalls some research should be done into the past building practices in the area at the time the property was built. Avoid homes with known construction methods that will meet current building codes. Extensive renovations may legally require that certain construction aspects of the property will need to be brought up to code.

Careful planning of the entire renovation project should limit costs from going beyond budget. Get pricing on all material costs before the project begins. Focus on upgrades that add value and minimize expenses on things that add little or no value to the property. After you've made a plan, stick to it.

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