The term “Flipping Homes” is derived from the practice of purchasing an existing property below market value, fixing it up and reselling at market value for a profit. Flipping refers to a fast sale of a home as this is a key component in making a profit. There are several factors that will affect the amount of profit to be realized including existing liens and tax arrears, renovation costs and other expenses associated with carrying the property such as taxes, insurance, maintenance and mortgage, if financing is involved.
It is important that one makes a good investment when purchasing a home with the intent to flip. The best homes to flip are those that do not show well due to general cosmetic issues and can be purchased for below market value without incurring major expense. These issues can be remedied and the home can quickly be put back on the market at full market value. Homes needing major renovation including new electrical, plumbing, roofing, or upgrades of kitchen, bathrooms and flooring can be quite costly which will minimize expected profit. If you have the ability to perform some of the work such as installing cabinets or countertops, changing out a sink, painting or very basic electric and plumbing work, this will reduce your costs and improve your expected profit. It is important to be able to estimate the costs as well as the timing necessary to rehab the home. The longer the home sits on the market, the less profit one makes due to the carrying costs.Home Before Purchase Price $83,000.
The buyer should have a good understanding of the area, subdivision, or condo complex in which they are buying a property. It is best to work with a professional Realtor who understands the local market to help you identify appropriate flipping opportunities. Knowing characteristics such as number of bedrooms and bathrooms, type of home, proximity to schools and services which are most desirable for the respective market will go a long way in making a good investment. It is also important to know what comparable properties in the area have sold for in the last 3-6 months as this will help determine what the current market value will be for the home to be put back on the market.
To be successful in flipping, you will need to have a network of professional contractors whom you trust including general contractors, plumbers, electricians, painters, roofers, and landscapers. Having a team lined up and available when you are ready to commence work will ensure a quick turnaround of the property. If necessary, ask your family and friends for recommendations of contractors or contact your local Better Business Bureau or Chamber of Commerce to find experienced service providers.
It is also important to know which home improvements increase the home’s value the most. Such improvements include kitchen and bathroom upgrades, repainting the home’s exterior, new flooring, closet expansion and enhancing livable exterior space.
If you are without sufficient cash to purchase the property outright, you will need to explore financing opportunities such as a mortgage, home equity loan or home equity line of credit.
The most apparent advantage to flipping properties is the ability to realize gains in the short term and to have capital tied up for the shortest amount of time. Also, unlike the stock market, Real Estate markets are more easily predictable. Flipping properties is best suited for periods when prospects in the stock and bond markets are low or for investors desiring to realize short term capital gains for as long as the present market will allow.
In the current market, as home price appreciation slows down, the volume of flipping is decreasing but the average profit in a flip is staying very strong. In fact, according to U.S. News & World Report, the gross profit has remained in the 30% range for the past three years.
I personally have just begun flipping properties and am working on my first flip. Should you be interested in flipping homes or other Real Estate opportunities in the South Florida market, please feel free to contact me directly at jaykenney@SFPropertyTeam.com or at (954) 547-9483.