The Business of House-Flipping: Make Money From Buying Fixer-Upper Properties

real estate investment concept

Investing in real estate remains to be a profitable venture. People who go into it can earn a passive income and build their wealth over time. Although quite expensive, it is relatively low-risk, at least compared to the stock market, as long as you have the patience for it.

There are plenty of paths that you can take as a real estate entrepreneur. You can take on the role of property management and build a property management franchise for investors that own a lot of houses across the nation. You can become a landlord and lease units in your real estate property.

What is House Flipping?

However, one of the most lucrative ventures you can enter is house flipping. If you have never heard about it, house flipping is the practice of buying a real estate property for first cheap and selling it for a much higher price. Of course, there is a catch: the real estate property often needs a lot of work. It might be damaged. That is why nobody has made the purchase just yet and the owner was forced to sell it at a lower cost.

You still will have to invest money into repairs and renovations in addition to the amount you spent to buy the property. Homes that are old and foreclosed are often the types of real estate properties used in house flipping because they are cheap.

Real Estate Rules Still Apply

When you buy a fixer-upper with the goal of flipping, the rules of investing in real estate still apply. Investors, to make sure that the property will return a profit down the line, needs to assess certain factors that affect its value. One such factor is location.

There are a few questions you first must ask yourself before you close the sale. Is it an established neighborhood where neighboring properties are rising in value? Is there potential that the neighborhood will become a coveted place to live in a few years or so? Or, maybe it is in decline, with a rising crime rate, and with stores closing one by one? These questions can predict the profit you will make from the property.

Location is also one common reason why people move. They want to be closer to their place of work, or they want to live in a quiet town with lots of space and good schools for their kids.

Even if you turn a fixer-upper into a mansion, you would not find a buyer willing to purchase the property at a price you desire if it is in a bad location.

home

Crunch the Numbers

Home renovation gets very expensive, especially for a house that is not fit for living. You are not paying a lot for the acquisition of the property, but are you sure you would not have to spend more than you are willing to. Moreover, you might spend more than how much the property will sell, even if you have done all the necessary repair and maintenance work.

Look around and compare how much similar properties within the same market are currently selling. It is nice to be optimistic, but do not overvalue the property. Be realistic with your expectations.

After you have factored in the home renovation expenses plus utilities, taxes, loan repayment, and other financial obligations, see if you will earn a profit from the property. If not, then it is time to move on.

What Do Buyers Want?

You will be responsible for how the property will look. You might have to strip off the wall-to-wall carpeting, replace the entire roofing, remove or put up a new wall, etc. No one else but you will be making all these decisions. Because the house is a little rundown, you have a lot to renovate.

Knowing who your potential buyers will be can guide you as you make these important decisions. If the property is located near a school, then the house should have rooms for kids. On the other hand, if the neighborhood is full of retirees, features that are friendly to seniors would be highly appreciated.

Moreover, do the basics. Finish the basement and the attic. Give the yard a little mowing and trimming. A property where potential buyers can easily move in would sell faster and at a higher price than something that still needs fixing.

No business is free of risks. The same applies to real estate. Entrepreneurs who want to start investing in properties should be prepared to face the possibility of losing money, especially in house flipping. However, if you play your cards right, you might build your wealth by buying and selling real estate properties.

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