You’ve probably heard of house-flipping, a distinctly popular type of real estate investment. TV shows like TLC’s Flip That House make the process look fun, easy and profitable. Could it really be so simple? Is the money still good as we get further away from the real estate bubble of the 2000s?
Buying low and selling high is not as easy as it used to be, but you could still come out on top. Here’s what you need to know.
Shrinking Profits
House flipping has become quite popular in recent years. Gross profits from flipping have been high in recent years, but the net profit margins are becoming smaller. Buyers are now wary of cheap upgrades, so most house flippers these days are looking for quality materials and solid workmanship. House flippers can no longer get away with making a few cosmetic changes to the facade of a crumbling home. Making significant improvements is a good way to build a business, but profits on individual homes may be smaller than they were in the days of the housing bubble.
The number of houses flipped in the U.S. hit an 11-year high in 2017, but those numbers dropped 12 percent in 2018. Time will tell if that slump is a continuing trend – or if sales will rocket back up again.
Risks Can Pay Off
There’s always a chance that you can pour a lot of money into a house, and not gain anything from your investment. In the worst case scenario, you could even lose money. Once you purchase the house, it’s a race against the clock to fix it up and then sell it again, while continuing to pay contractors, realtors, property tax, utilities, insurance, and possibly interest on a mortgage.
However, if you plan the details just right, the sale could be very rewarding. The average gross flipping profit in 2018 was $63,000, with even larger returns in major metropolitan areas. Scranton, PA had an average gross return on investment of 168.2 percent on houses flipped in 2017.
Keys to Success
If you want to be successful at flipping houses, you’ll need the knowledge to pull it off.
Some things that you should research before you buy your first house to flip:
• Property values in the neighborhood
• Financing options
• Local contractors
• Where to purchase materials
• Cost of repairs
• Trustworthy home inspectors
• Local construction codes
The Future of House Flipping
In the early 2000s, low-cost homes were abundant, and buyers were eager to spend money. Now the real estate market is becoming increasingly complex. To help manage all the various factors involved in flipping, some investors are turning to artificial intelligence. Computer programs can calculate costs, risk factors and potential profits.
Some of the drudgery involved in buying and selling homes will likely be delegated to more computer applications in the future. Tasks that once required numerous phone calls can now be completed in a few clicks.
Do You Have What It Takes?
As you can see, you definitely need more than a few buckets of paint and a hammer to flip a house and come out ahead. But with careful planning, good connections and a lot of luck, you could find yourself with a great new business.
Have you ever successfully flipped a house? We’d love to hear about your process.
