Is Flipping Houses a Profitable Business?

Real estate investors aren’t just buying and holding properties today. They realized the value of investing in real estate and selling the said real estate for a profit months after. That is called house flipping. Many investors have now gone this route because it is profitable. Studies showed that flippers averaged a 40% return on investment per property. That’s almost $64,900 in profit for every successful property they sell.

But before getting into this type of investment, make sure you’re ready for the work involved. Flipping houses is more than just using cleaning microfiber towels and making the home look presentable to potential buyers. It’s about taking on a huge project that involves repainting, restructuring, refurbishing, and many other things. As a house flipper, you need to find a property that’s worth less than what you can earn from it after renovation. That means finding a bargain house in an auction.

How Much Is a Single Flip Worth?

The median price for a home is $160,000. Experts believe that the gross flipping profit should be $64,900, including the estimated $44,980 of low-end renovations and rehabilitation. So, if you spent $160,000 on the property, you should sell it for $224,900 to get that $64,900 gross profit that includes the renovation costs and the $19,920 flip or 12% profit.

But that’s not all. To consider a flip a success, you have to sell the house within 12 months. If you cannot sell the house, your profit margin will decrease, and you may have to cut your asking price.

How Can House Flipping Be More Profitable?

If you can work on the house, you’re going to increase your net margin. Remember that the more you can save on the cost of renovation, the higher your profit will be. If you’re handy around the house, put these skills to good use by redesigning and renovating the home on your own or with a couple of professionals. But by doing the work yourself, you have a fairer chance of selling it at a more competitive price point. For potential homebuyers, that’s a deal they’d want to take you up on.

How Do You Start House Flipping?

You need money to purchase a house to flip. You can get either loan from the bank, which you’d have to pay with interest, of course. If you have savings, you can use that, though always be careful when using your personal money for any business transaction. If you borrow from a bank, make sure that the property is in a sellable neighborhood. Meaning, you should sell the house within months, or the loan will accrue high-interest rates.

Before you decide to start flipping houses, get your finances in order. Make sure you have good credit because banks will impose a higher interest rate on your loan. You should also have plenty of cash or excellent cash flow because you still have to pay those monthly bills and take care of your household. That doesn’t stop because you’re in the middle of flipping houses.

How Do You Prevent Mistakes When Flipping Houses?

Real estate investors can make a couple of mistakes when flipping houses: one, buying a home before the market dips and two, spending too much on the renovations that your profit is almost down to few hundreds. You should know the housing market. It occasionally dips, especially during volatile economic situations. But if there’s one thing you can be sure about the housing market is that it eventually gets out of that slump.

However, getting your money stuck in a property that you cannot sell for the foreseeable future will mean a loss of income. You won’t be able to buy new houses to flip. That will put your house flipping business in limbo. Try to read the market better before deciding to buy a property.

This lack of understanding of the market can also lead you to renovate more than what your target market is willing to pay for. Where is the house located? If it’s in an upscale neighborhood, then go ahead and renovate it with high-end materials. But if it’s in a low-income area, what are you doing fitting the kitchen with state-of-the-art equipment? You need to be prudent with your renovation choices.

Flipping houses can make a lot of money, but there are significant risks involved that you should think long and hard about. Making smart decisions will lead to considerable profit. However, making the wrong ones can push you down the path of bankruptcy.

Spread the love