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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.
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.
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