Thanks to the likes of HGTV and the entrepreneurial spirit, house flipping has become a viable source of income and a desirable route for investors.
With this rise of entrepreneurs looking to dip their proverbial toe into the flipping industry, it’s become more and more competitive.
Jumping into the realm of house flipping without first educating yourself and performing market research is a surefire way to lose oodles of money, so take a look at the important facets regarding house flipping and determine whether this venture is currently a smart move for you.
The Flipping Market
House flipping reached a peak back in 2006, when nearly one in every 10 houses was considered a flip. While levels like this haven’t been experienced in the years following, house flipping practices seem to be coming into their heyday again. House flipping rates have risen and are at a current two-year high, with 6.6 percent of all single-family and condo sales in the first quarter of this year being flips.
This can be attributed to a number of reasons. For one, it seems there’s been a burgeoning confidence in the real estate market, as more houses are available to buyers after lengthy foreclosure processes. The answer may lie truly in these foreclosed properties.
As they’re finally being sold, there’s much profit to be made by purchasing below market level and giving them some TLC that will allow for a higher price tag. The proof is in the pudding: homes flipped in this year’s first quarter yielded an average gross profit of almost $60,000.
One negative to keep in mind: as competition continues to heat up, prices will see increases as well. That’s why it may be in your best interest to begin your flipping investment sooner rather than later.
Understanding Your Particular Market
So the house flipping market may be looking bright nationally, but what is the true status of your local market?
It’s important to understand what’s happening your city and the neighborhoods in which you are pursuing a home purchase. Is the neighborhood in question going through a transition? How is pricing looking—will the cost of homes in this area rise or decrease in upcoming months?
It’s important to take a look at recent sales and comparable properties to understand the type of property you’ll be competing with and looking to outsell. It’s also important to understand your target buyer. If you’re shopping in an area close to bars and nightlife, you may be looking to sell to young professionals. If the neighborhood features a great school district, you’ll want to cater your flip to young families.
Understanding this before purchasing will help you estimate how much you’ll need to spend on flipping, and help you plan out exactly the modifications and renovations you think will appeal most to your target buyer.
Consider Your Financing Options
If you don’t have a large amount of cash waiting in the wings, that doesn’t mean you have to give up on your house flipping dreams. While it’s obviously the preferable route, there are other finance options that willing and ambitious entrepreneurs can pursue.
Bank financing offers low interest rates, but national banks have made it nearly impossible to secure loans for this type of endeavor.
Some choose hard money lending companies and this can be a wise decision. While private money loans do come with higher interest rates, they’re also much faster. Most clients can pursue a loan and receive it within a matter of days or weeks, which allows the savvy investor to hop on a once-in-a-blue moon opportunity that provides little window for stalling.
Others choose to use real estate crowdfunding sites which can provide a higher percentage of purchase price and repair costs, with comparable interest rates to hard money or private money lending. Whatever you choose, come up with a strategic and airtight business plan to present to potential investors and make a plan to pay back what you owe as quickly as possible.
If you’re looking to get into house flipping, This might be the year to do it. Keep these aspects in mind as you shop around and do your research before investing.