3 Essential Factors That Can Make House Flipping Profitable
The house flipping market has always attracted real-estate investors owing to its lucrative gains. Before 2012, house flipping was a surefire option for earning profits for those who were cash-rich and had an appetite for restructuring.
The housing industry bubble put a vast number of homes on the market list, due to foreclosures. There was no shortage of vacant houses on the listing. It couldn’t have been easier to join this industry! One could just buy a home from a bank, paint it to make it a tad more attractive, make necessary architectural changes, install hardwood floors and sell it off at high margins.
Today, a strong economy has created a bunch of potential flippers in the market competing with each other. TV shows viz. ‘Flip or Flop’ telecast on HGTV and ‘First Time Flippers’ on DIY Network provide all the essential fundamental information to the new flippers waiting to find the right deal in the market. However, the housing market is back to pre-recession level. It’s the reason behind a significant decrease in houses listed on the market. New generation investors are having a difficult time in finding affordable real estate.
Vincent Harris, CEO and co-founder of Hoozip (a startup manufacturer of productivity and lead management products for real estate investors) answers “absolutely” when asked about whether it’s possible to generate money with the ever-changing demand of tight inventory and least expected growth of single-family home development in the current scenario.
The Home Flipping Market: Now & Then
The flipping business is not as simple as it was during the recession era. Times have changed and so has the ease of flipping.
ATTOM Data Solutions claims that the second quarter of 2018 observes only 32 percent home flips across the country. These homes were purchased as a distressed sale, a foreclosure or a bank owned deal.
The statistics, if compared with the same season of 2017, show a 6% decrease. If compared with the first quarter of 2010, the rate further decreases to more than half. 2010-based distressed property purchases for flipping witnessed a whopping 68.2 percent rise of all purchases.
The reason behind this transformation does not go back to only having fewer houses on the market. With local professional flippers, more prominent brands and giant investors who are referred to as iBuyers have entered the scene.
Companies like Opendoor, Offerpad, and Zillow offer quick all-cash purchases for homes to flip and make a profit. While these companies provide useful options to sellers, their presence in market results in a competitive environment for other investors.
However, these conditions do not seem to stop flippers from flipping. The prerequisites have been changed. You as a flipper not only need to be able to find the right house which is on sale, but also to have reliable financial backup to seamlessly go through the actual work and clear all critical market stages to achieve a payout.
‘The New York City housing market observed a slow down in the early months of summer where buyers seemed to be interested in properties but didn’t make offers. Sellers, on the other hand, waited, either to reduce the pricing or to take the listing off the market until the market picks up the pace in later seasons’ says Ted Karagannis, who is a licensed real estate broker for Warburg Realty.
Part-time flippers may harvest good profits in today’s market. Harris says, it’s great if a flipper closes a deal for $20,000. The same amount could pay off the flipper’s child’s tuition fees or fund a new roof for his house.
If you want to start with real estate investment, either by flipping homes or serving as a landlord, here’s good news. You do not need capital to buy the house with cash. Rehab Financial Group is a lender for real estate investors in Rosemont, Pennsylvania. Susan Naftulin is the owner and the president of the firm. She says, her company considers the market pace to help borrowers stay competitive with cash-rich buyers.
Naftulin advises first-time investors to check their expectation before making a plunge in the market, whether you finance or use your cash. She says, ”better to make your mistakes with smaller rehab, and a smaller loan than bigger”. Naftulin explains that the firm works as hard as it can to wrap up their side of it and underwrite as quickly as possible so as not to be an impediment.
3 Essential Factors That Can Make House Flipping Profitable
Let us learn about the factors that contribute to increasing your chances to make handsome gains from home flipping.
1. Consider different ways of investing:
Abandon the thought of starting with local multiple listing services — instead look for the properties that aren’t listed on the market, but have owners who are willing to sell. Local assessor offices provide property related data that give insights about the property tax information, owner of the house and so on.
Such researches range from high equity home to unhandled property taxes or an owner who recently moved in. You are dealing with individual owners. Thus, empathy plays a significant role in being a successful investor.
If you happen to succeed in combining professionalism with getting a value-oriented purchase, you are most likely to hit the bull’s eye. Harris says, “They want to deal with someone who’s credible.” You could also be a landlord by purchasing property and use it for lending. In that manner, you would be responsible for its management.
2. Make small and smart investments:
As a house flipper, you can make more money from the house that needs minimal work. A property which is basically in good condition, just needs some average work to make it look presentable. It will ensure getting a lender onboard, when less risk is involved. You might not gain big, but at least you won’t be required to put more money into remodeling the house. Naftulin further says, “you don’t make a lot on each property, but you make a lot of houses.”
As and when you take on the ability to inspect the property thoroughly, to ensure there are no hidden problems associated with the house and check on the legal aspects of the property, you can draw the attention of the potential buyers. All you have to do is to add some cosmetic changes to the house. As Karagannis says, “make it a little more special than the norm” — which means, good plumbing, kitchen faucets, innovative hardware, and attractive flooring!
Naftulin and Karagannis both advise new age flippers to research property before putting an offer. It would be best if you collected all the vital information about the home, the neighborhood, legal information about the property and property history to ensure a good investment.
You must know the ins and outs of a condo or co-op building’s management and fees in New York City to avoid a failed investment, says Karagannis. He stresses on doing some ground-level research saying, “is the building a good condo, or the condo is more like a hotel where people come and go every six months to a year? What qualities are you looking at while buying a property?” Many newcomers fail to research these points and commit serious mistakes.
3. Wait for the right conditions; concerning the economy:
In real estate investment, an economic downturn is not a regular thing. Currently, the economy is strong and the real estate outlook remains bright. So when you decide on flipping homes, make sure you have a long market listing to look up. You never know — the tables could turn and people may not be able to afford costlier homes!
Make sure you consider all the vital points discussed above before flipping houses or becoming a property lender.