There are many ways to invest in housing beyond the traditional buying to rent. House flipping is one of the fastest growing.
Essentially, it is about buying, renovating and selling . That is what this business is all about, although there is much more behind it that is worth knowing. We will tell you what others do not tell you about House Flipping .
What is house flipping?
The literal translation of this English term would be “turning the house around”, although perhaps the most appropriate term would be “giving the house a spin”.
This investment model originated in the United States, although it can be said that it has been around for a long time to a greater or lesser extent. Real estate flipping is focused on the residential market. That is, on houses to live in, not so much on offices.
These are always houses that need to be renovated, either because they are in poor condition or because the renovation could reveal hidden potential. For example, to optimize their layout or offer a type of housing that is not available in that area.
The ultimate goal is to refurbish them and sell them more or less quickly. This is their main attraction and what has led many young people to jump on the house flipping bandwagon.
The ultimate goal is to refurbish them and sell them more or less quickly.
How a house flipping operation works
The basics of this type of operation are simple: buy, renovate and sell. It's that simple.
From there, there are a number of tips to make flipping successful or more profitable:
• Research the market thoroughly in search of opportunities , both in price and in the specific needs of an area (for example, a neighborhood with few three-bedroom houses for families).
• Negotiate the price and have a clear budget . Since these are houses that need to be renovated, the price will always be lower than that of a new home to move into. It is important to negotiate the price well, because that is where a large part of the profit from the operation will lie.
• Taking care of the costs and times of the reform is something more complex in the first operations, but it is adjusted with experience. First, because contacts are made and contractors are known and, second, because the costs and duration of the reform are better estimated.
This is how house flipping works, also known as Business Flipping or Flipping alone, and the profit from which will depend on the purchase price, the cost of the renovation and the sale price, which also needs to be investigated in advance.
Advantages and risks of this investment route
Like any investment, house flipping also has its risks, strengths and weaknesses.
The main advantages of real estate flipping are:
• It can be a very profitable business. In the United States, profitability ranges between 28% and 38% for an operation of less than a year.
• It is compatible with your full-time job. Unless you are involved in many operations, it can be a part-time job.
• It's fun, or it can be fun depending on your tastes . If you like renovations, decoration or interior design, you will learn a lot and it can even entertain you. Of course, always keep in mind that you are dealing with a business.
On the other hand, there are the disadvantages of house flipping :
• It has its risks, starting with the financial risk . The price of the house may go down, the cost of the renovation may be higher than you thought and, of course, the house may not sell for the price you had planned.
• You can get stuck if you fail to sell your home in the expected time and that will generate monthly costs.
• There may be regulatory changes in the market that you did not expect and that affect your investment or the taxes you have to pay, which will reduce profitability.
• It has a high emotional cost , like any home renovation that does not depend on you. The renovator can delay the work, not get the finishes right and many other inconveniences that you will have to fight and negotiate, with the consequent emotional wear and tear.
Is this real estate investment model legal?
This is a very common question and easy to answer. This practice is 100% legal and does not violate any law. In fact, depending on how you look at it, you are buying a home to improve its habitability and put it on the market. In other words, you are doing business, but also contributing to society to a certain extent.
Ultimately, house flipping is popular because it is an accessible business, with high and rapid potential profitability without having to make a huge initial investment.
