Jan 23, 2019
Thanks to TV shows like Fixer Upper, Desert Flippers, and Flip This House, flipping houses has become more and more popular among players in real estate. But what exactly is house flipping?
House flipping is when people investing in real estate purchase homes that usually have been foreclosed or repossessed, fix them up, and then resell them at a higher value to gain profit.
While house flipping sounds pretty straightforward, it can be pretty risky. There have been multiple cases where real estate investors end up losing money or just breaking even over the flipped houses they put up for sale. RealtyTrac advises that real estate investors have to have a minimum profit of 20% in order to recover the costs of flipping a property.
House Flipping Requirements
Despite all these risks, house flipping is still pretty attractive to a lot of real estate investors. But that does not mean that anyone who wants to flip houses is able to do so. There are certain prerequisites in order for real estate investors to start flipping homes.
For one, house flipping requires good financial standing. It is nearly impossible for individuals to purchase a foreclosed home without having good credit scores. Smart Property includes having a good credit score as one of the non-negotiable requirements before playing around with real estate. Having good credit scores allows for better interest rates to be available when getting a home loan.
Despite the increasing number of financing options available to flippers, a lot of investors still choose to use cash when buying a home they plan on flipping. Using cash reduces the risks of house flipping, since using credit cards or getting a home loan can accrue huge interest rates. Huge interest rates spell doom for house flippers especially if the house does not sell quickly, or if the costs to renovate it are high.
Identifying a Good House
The key to successful house flipping lies in choosing the right property. Real estate investors who are successful house flippers look at a few key attributes when choosing a house to flip.
Firstly, where the property is located forms a huge part in how well it will sell in the market. When selecting a location, be sure to check out the neighborhood of the house in consideration. Look at indicators of a thriving town such as real estate prices and crime rates. You can also research rankings and reviews of schools in the area. All these contribute to how attractive a house will be to a potential buyer.
It’s important to keep renovation costs as low as possible when flipping a house. The lower the cost to renovate or fix up a house, the quicker it will be to sell the property since it can be priced much lower without eating up into the allotted profit margin. So choose homes that are structurally sound and require little to no renovation at all.
Getting into the business of flipping houses can be extremely risky. Being armed with the right financial tools is important, but so is conducting extensive research on the property being considered. These tips should help any real estate investor learn the ropes of flipping houses and make smart decisions.