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Flipping property is a quick way to generate profits when it is actively pursued as an investment option. However, it may not necessarily be easy and might involve specific tricks and strategies. There are several factors that govern whether or not a property flipping endeavor is successful. Some of these factors are an appetite for risk, high levels of patience as well as speedy action to make the most out of each attempted deal.
What exactly is Property Flipping?
A flip is an investment technique where the investor adopts a buy-low sell-high approach to generate maximum profits from property deals. There are different ways to handle property flips, and it primarily depends on the comfort level and expertise of the investor.
Contract-to-Sell
This is the ideal flip where the investor signs the contract to purchase a property, but passes it on to another interested buyer who will in effect close the deal. The main advantage in this deal is the time factor; when timed right, the property deals are often settled within a week’s time, and the investor earns a neat profit when the buyer settles the transaction. Both the contract and the selling prices of the investment properties are very much below the market value at the time of transaction.
Finding below market property in a developing location and timing the deal are the main risk factors. If the investor is unable to locate a second buyer within the given time, he has to fund the deal, lose the deposit or face the consequences of breaching the contract. Poor choice of location also may render the investment futile if there are no takers.
A good network of local agents and potential buyers will help find both the right property and a suitable buyer. Adding a timeline clause to the contract will buy time to locate the second buyer or arrange for finances. You can also protect yourself by making sure the contract includes a provision to transfer the property to another buyer.
Buy-to-Revamp and Sell
Investors may adopt this option to buy a property of their choice, renovate the structure to boost its value and put it up for sale in the retail market to generate a profit. This is often a straightforward investment approach with minimum risks. However, getting into unreasonable debts, making a wrong choice of property, and attempting extensive revamps are common pitfalls to be avoided. Those pitfalls can easily turn flipping property into a money pit.
Buy-Refinance-Lease
Frugal investors can choose to get the revamped property refinanced, and lease it out to interested buyers who may be interested in eventually owning the property. Those opting to lease the property should ensure that mortgage and other spends are bridged using the rent from the tenant. Again it is important to assess the property and the expense before adopting this mode of property flipping.
Buy Pre-Construction, Sell on Completion
Property investors well-versed in the nuances of the real estate markets also buy homes or apartments that are under construction, and sell them to potential buyers when the property has been fully developed. The main risk factor in this method is that the decision is prone to fluctuations in the real estate markets over the development period and investors may suffer a loss.
While flipping property isn’t necessarily as easy as reality shows may make it look at times on TV, it can be a profitable investment option for those who are familiar with dealing in real estate, provided it is timed and assessed accurately.
Photo courtesy of: Horvathgab
Buying pre~construction can be very risky in a struggling economy. If I were considering that option, I’d do the sums and make sure the rental figures stacked up. That way if things didn’t go your way, you’d have a Plan B..
Money Bulldog recently posted..Preparing Your House For Sale
Great point Adam! I would also say that flipping houses is not for the faint of heart with the economy the way it is.
I’ve thought about flipping a house and you are right reality shows make it seem so easy but really it’s not. There are so many risks involved and potential for losing alot of money if things start going down hill. In our area so many people are struggling to get into a house and prices are so high it wouldn’t be worth our while. I’d have better luck renting it out then flipping it although I’m sure it’s done. I’d likely feel safe if I had money to back the investment in case something should open up a can of worms.
Canadianbudgetbinder recently posted..The Grocery Game Challenge #5 Jan 28-Feb 3~Will You Target Your Budget
Isn’t that always the case Mr. CBB? If it were as easy as it was on TV, then we’d all be doing it and making boatloads of money off of it.
I know a few people who flip houses & it’s really a tough business. You really have to know the market and be able to identify what properties are really good deals. I’ve always wanted to give it a shot, but it’s still pretty intimidating to me.
The First Million is the Hardest recently posted..Finding The True Value Of Free Time
I’ve heard the same thing. It’s tough and you risk quite a bit. I would think that being able to do a lot with your hands would help and that I do not have.
Agreed, it is not as easy as TV makes it sound.
We are landlords and own 40 units.The last year has been very difficult, as many tenants think paying rent is optional.At any given time we have 6 tenants who have not paid their rent, or gave us a bounced cheque. We have evicted 4 tenants in the last month. We also have Rent to Own houses, where not one applicant has honored their committment. It’s a good thing we live very frugally, because we still have mortgages to pay on these properties, repairs, maintenace, cleaning etc. the bank doesn’t care about our excuses…unlike the excuses we get from tenants. We need to cover our debts, or risk losing everything.
Anyone attempting to flip properties, better have a good buffer, and a Plan B to fall back on.
Wow, this is the story that those who go into house flipping do not want others to hear about Kathryn. Sorry to hear about the difficulties you’ve faced over the past year. I would totally agree that anyone looking to get into this have a good cash buffer and a backup plan.
It has always sounded to me that you need two particular strengths to make this succeed: people skills (not gladhanding, but getting tenants and staying on people to collect) and “good with your hands” because there’s always something that needs fixing.
In the long run, though, this type of investment can be very profitable. Introverted geeks like me gravitate to stocks…
William @ Bite the Bullet recently posted..Retirement: Do You Know This?
Yes, staying on top of tenants can be a full time job. Knowing the tenancy rules for your area is also extremely important. My husband and I easily work 60 hours a week. Between cleaning, maintenance, answering emails/phone calls, preparing our taxes,preparing leases, attending court,,etc it is a full time job.
Animals abandoned by their owners. So far we have foound homes for about 15 cats….taking 2 of them ourselves.
The disgusting messes the tenants leave and the amount of damage they do, most people would not believe….and this is after it takes 1-2 months to get rid of them for not paying rent…if you’re lucky.
John, thanks for this article I would really like to buy a fixer upper and flip it, that is if I could ever get my wife to agree. Think it is a better “active” way of investing than managing it in the stock market!
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