5 Simple Strategies to Flip Any Home
Unless you’ve been living under a rock for the past decade, you know what it means to flip a home. You can’t turn on the television, traverse through a bookstore, or visit your local home improvement depot without stumbling over house flipping success stories. And there’s a reason for that.
Since the dawn of the modern real estate industry, home buyers eager to make extra money have been purchasing homes, fixing them up, and reselling them as quickly as possible. These flips not only pad portfolios, they make sound investments for buyers that have the time, starting capital, and knowledge to succeed. While strategies for flipping homes vary, the intended result is to maximize profits and minimize risk. Here are six simple strategies to try when flipping a home.
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1. The Traditional Method
The most popular strategy investors employ when flipping is what I like to call the fix-n-flip. This method is simply buying a fixer-upper, making the necessary renovations, and then putting it back on the market. This strategy works best for investors that flip for the area; this means making repairs and updating home features while keeping a potential buyer in mind. It’s catering to the people most likely to buy the home.
While this method can easily make an informed flipper between $15,000 and $50,000 on a single deal, it also comes with risks to watch out for. The danger in the fix-n-flip lies in the property acquisition and total repair cost. Paying too much for either is an easy mistake many investors find themselves making at some point on their flipping venture. To ensure you’re financially prepared for an unexpectedly costly reno, be conservative when calculating costs and assigning a remodel timeline. It’s also prudent to consider the cost of a realtor if you skip on listing as a For Sale By Owner.
2. The Landlord Option
Instead of selling the recently renovated property with the traditional method, investors interested in the landlord option sell a property for terms. Once the major construction of a rehab is completed and the property is all spruced up, investors can lease out the home with an option to buy. (Investors who have lost money on an investment often consider this as the best strategy for potential long-term profit.)
When you lease out a home, tenants are contractually obligated to pay a monthly rent that should cover any mortgage payment you may have. If you bought the house in cash, you get to keep all rent to fund a future flip. If a tenant decides to buy your flip, you earn a larger profit than traditional selling since you avoid the traditional broker’s fees. Also, if the tenant buys after twelve months, you pay a substantially lower capital gains tax.
While landlording can be quite lucrative, many investors avoid this option due to time commitments and liabilities. As a landlord, you’re responsible for ensuring your tenant pays, managing the property, and interviewing potential tenants in between leases. It’s hard work – even if you’re collecting rent every month.
3. Selling As Is
If you’re looking for a short-term flip after purchasing a property, you might want to consider selling the home as is. This means reselling the home without fixing it up. While you won’t earn near as much money as making the repairs, this home flipping method allows investors to move on to other projects without a loss. Investors find this strategy appealing when they lack the funds for a proper remodel or cannot renovate without losing money.
4. The Wholesaling Strat
Wholesaling is a popular flipping strategy that allows investors to sell without making repairs. Unlike selling as is, however, wholesaling requires selling a property to another investor. Wholesalers buy a dilapidated property cheap with the intention to hand it off to others interested in fixing it up. You may only make a few thousand dollars with each wholesale deal, but with minimal risk, this method is common for investors needing quick cash.
5. Flipping Pre-Construction
In hot real estate markets, investors may consider buying a home pre-construction and then selling once it’s completed. Some markets see home prices appreciate a whopping 2% per month, making a pre-construction flip a money-maker no-brainer. Keep an eye on the economy if you choose this option: if the market tanks so does your chance to sell. You don’t want to be stuck paying for a home you’re only able to sell at a loss.