Brian E. Murphy
1 year ago
You find a real-estate property available for purchase below market value, you buy it, renovate it, and sell it for a high profit a few months later. Sounds perfect, right? But is house flipping still a smart way to invest your money in 2021? If you follow our guidelines below, chances are you’ll find a new, fast revenue stream.
House flipping (or fix-and-flip) has been the most lucrative way to earn a fast profit off the real estate business in the past decade. It’s still a viable investment today too. According to a report by ATTOM Data Solutions, the gross profit on a home flip in the first quarter of 2021 has increased and translates into 36.7% ROI (Return On Investment).
Investors are making around $60K in net profit flipping houses. That’s a life-changing sum.
But before we understand if house flipping is the best investment method for you, let’s start with the basics:
What Is House Flipping?
Quite simply, house flipping is the practice of buying existing houses that need renovation, fixing them up, and then selling them for a profit.
The property is bought with the intention of reselling it quickly. The time between the purchase and then sell usually ranges from a couple of months to a year. A longer wait will translate into monthly money loss.
You don’t need to renovate a house to flip it. Some investors buy a property where the prices are rising and, after holding it for a short period of time, resells it at a higher price.
So now that we understand what it means, let’s explore the best ways to:
It’s a reasonably straightforward calculation:
You take the price you will ask for the renovated property, subtract it by the original price of the house and then subtract the tax and renovation costs.
Here’s an example from a recent house flip in Austin, Texas, we’ve researched:
The property was sold for $634,000 four months after the purchase. That’s a net profit of $162,000. That’s $40,500 each month the property was in the couple’s possession (they are not professional house flippers. They’re just a regular couple who had some money on the side and wanted to invest smartly).
Due your due diligence before you buy a property. Check the neighborhood, explore the price history, and make sure you’re getting into a surefire investment. It’s advisable to get the help of a local real estate agent. You can request a free consultation session (or—if they insist—pay a reasonable sum).
Is House Flipping Still a Profitable Investment in 2021?
I real estate investment, timing is everything.
And for the past couple of decades, the time is always – now.
There are always buyers in the market ready to close deals. And if you know the law of supply and demand, you can quickly understand that the fact that there’s always new property available for sale means the demand is high and getting higher.
The coronavirus’s effect on the housing market is substantial:
Inventory is lower, driving the demand higher than the supply.
The unemployment rate is up, meaning more people are looking to sell their houses.
Construction is not shut down, making it easier to turn around a house flip.
Prices are down, enabling you to get better deals on homes, fix them up, and sell them once the pandemic is over at a more significant profit.
No one can tell precisely when and how the housing market will recover from COVID-19. However, if you decide to purchase property with a low enough margin, you will most likely be protected from any significant crashes that may come in times ahead.
How to Flip a House: A Step-By-Step Guide
Step #1: If Possible, Pay Cash
Flipping houses is riskier these days. It’s better not to mix it with loans and debts.
When you pay cash, you pay less because you eliminate interest fees. You’re not in a rush to sell; therefore, you won’t settle for a low offer. Making any investment with loans is not a smart plan. Ask any financial advisor.
Step #2: Do the Research
Don’t let your enthusiasm lead you. Do the leg work and research the real estate market, your area, lucrative opportunities, and all the available funding options.
Here are a few things to keep in mind:
When looking at the price, add the estimated amount of money you’ll need for renovation.
The house is not on an island. The neighborhood is also a crucial factor in the price you can charge for a flipped house. Is it a safe place to live in? Are prices on the rise? Check every detail. You can even talk to the neighborhood’s residents and try to find out things your real estate agent might not want you to be aware.
Put a price tag according to the market and the location. If an average house in a certain neighborhood costs around $230-280K, price your flip at the lower end of the range.
Step #3: Make a Budget Plan
Now that you found your house, it’s time to plan the flipping project.
First, call a home inspector and have them sweep the house from floor to roof. Do it before you pay one cent to the sellers.
Now list all the things that need fixing and scale them from small cosmetic retouches and complete overhauls. The small stuff – you can do yourself (or with some help). For the serious fixes, use a reliable contractor that was recommended to you by someone you trust. Sign a contract before you start the process.
Be prepared for surprise repairs. You never know what hides underneath a wall-to-wall carpet or inside an attic’s wooden frame.
Step #4: Renovate Sensibly
This is not your dream house! It is the means to buying your dream house.
If you want to flip a $300,000 house, don’t throw thousands of dollars on custom, hand-drawn tiles and window frames that came all the way from Belgium.
Never underestimate the power of a fresh coat of paint, fine sandpaper, and brand new handles on a second-hand wardrobe. It’s the little things that can make a huge impact!
Brian E. Murphy