House flipping is a popular real estate investment that’s been around for over forty years. In the 1980s, real estate investors saw a chance to snatch up foreclosed houses for low prices. Once they had the houses, they improved them and waited for the economy to rebound to sell them. Those investors made quite the profit from their quick thinking, and others soon followed suit. House flipping has continued ever since, coming and going from the public eye. Its newest phase of popularity came from reality shows about professional house flippers. At present, house flipping has reached its highest financial peak in 20 years. The average profit for a flipped house is about $73,000 and lots of people want to cash in on that. That makes house flipping a great investment for your real estate portfolio. If you’re ready to cash in on the peak, here’s how you can use house flipping to become a better real estate investor.
Start With One House
The first step is to find your first flipper. Research areas near you to find the best place to look for houses. The ideal house is in a decent area, is close to lots of amenities, and has a reduced buying price. A house that’s too expensive will lower your profits, but a house that’s cheap, because of the area it’s in, will have a hard time selling. There’s a delicate balance you have to keep to ensure you stay on budget while also being able to resell quickly.
This is where the 70% rule comes into play. The 70% rule states that you should buy a property at 70% of the after repair value, minus the repair costs. To explain further, let’s say the max price you can resell the house for is $200,000. 70% of $200,000 is $140,000. So, if no repairs were needed, you could buy the house at $140,000 and make a 70% profit.
If repairs are needed, you have to subtract them from the $240,000. So, if you need $65,000 worth of repairs, you end up with $175,000. To maintain your 70% profit margin, you would need to lower the offer on the house to $75,000.
If you aren’t sure if you’ve found the right house, ask yourself these questions. Can the 70% rule be applied? Is the house in an area people are moving to? Are there any factors that will be scary to potential buyers? As a general rule, if you wouldn’t consider living in the house once it’s updated, other people probably won’t either. Spend some time going over all the details of the property before you make a decision. You don’t want your first flip to turn into your first flop.
Learn How To Upgrade
To maximize your profit, you need to learn how to handle basic upgrades yourself. Putting in new cabinets, replacing tile, and painting, are all basic improvements you can make yourself. While you should call in professionals when you need them, you want to avoid doing it too often to save your budget.
Build Over Time
If you want to become a better real estate investor, you’ll need to build over time. This means that when you sell your first flip, you should put some of the profit into finding another. As you continue to flip, you build up expertise, allowing you to make more money over time. The process will get easier each time you repeat it. After a while, you may even consider branching out into other areas of real estate.
Someone Has To Invest In You First
You know the risks, you’ve done your research, and you’re ready to make an offer on your first flip. But before you can invest, someone has to invest in you. If you’re ready to start buying now, you can seek a flipper’s loan. A flipper’s loan covers the cost of your house and the repairs. You get the loan, buy the house, remodel it, sell it, and then repay the loan. It’s a straightforward process, and getting started is easy, so there’s no need to wait.
House flipping is an excellent way to get started in real estate and gain the skills to become a better investor. Take the time to see if house flipping will be a profitable investment for you.