There are many strategies for making money in real estate. One of the popular strategies is that of buying and flipping properties. Flipping is another word for reselling a property soon after you have purchased and probably renovated the property. In a hot property market, you can simply buy a property and without carrying out any form of renovation, it is possible to resell for a profit. This real estate investment strategy could be applied to vacant lands or to buildings. The important thing is to be able to resell for a profit.
In many instances, there is a need to add value to the property through renovation or reconstruction or remodification. The rehabilitation of a property combines flipping with property rehabilitation strategies. Experienced property investors know the seemingly little but significant improvements that a property needs in order to command an extra price. It is usual to earn significantly more than what you have put in if you know what you are doing. However, to make a profit from flipping properties, there are simple guidelines that you should keep in mind.
The basic thing to keep in mind is the need to start small. Starting small involves carefully selecting the area that you are targeting. Remember that there has to be a demand for the property that you intend to sell in the market. You should take your time to investigate the area and ensure that people are willing and ready to buy any available property in that area. All areas are not equal. A good area will have some features such as accessibility, nearness to basic infrastructures and security. You need to do sufficient research that will reduce your chances of failure.
Flipping carries a certain amount of risk which is greatly increased under certain circumstances except you are operating in a very hot property market. It is possible to buy a property and then hold it for a long time before it is sold. This is an investor’s nightmare. If you are using this strategy with your own funds, then your risk is less. However, if you are using this strategy with borrowed funds, you are taking a significant risk. This should be avoided because of the uncertainty of getting the property sold on time. If there is a delay, this could literally wipe out your profit and in a worst case scenario, it could get you into debt.
You need to realise that the profit in this business is made at the time of purchase. You should aim to buy your targeted property well below the market value. You should be prepared to negotiate, haggle, and bargain until you get the property for well below its market value. If you buy the property higher than its market value, especially in a time when the property market is slow or slowing down, your investment could be tied down for longer than you originally planned. Experienced investors focus on a specific area; they keep ready funds available for this purpose and they patiently look for and target highly motivated sellers.
Those who use this strategy usually have a short holding time for the property after purchase. In most cases, they do not engage in costly renovations but rather put the property back into the market with a carefully determined price tag. One of the key reasons why many properties stay long in the market is wrong pricing. Inexperienced or greedy investors who want to make top profit from a single transaction often use counterproductive strategies such as very high sales price. This will drive buyers and agents away from the property as well as spreading negative news about the property. All these will make it difficult to sell the property.
Any real estate investor choosing to use this strategy must be prepared to develop a very comprehensive marketing strategy. You need to tap into your network in order to spread the information about any property that you have for sale. Remember that time is of essence in this business. You also need a ready team of workmen that can carry out prompt and cost-effective improvements on a property if you need to improve it before flipping it. Considering the time value of money and the need to quickly turn around your money within the shortest time frame possible, you should put all the above factors into consideration in your planning.
This real estate investment strategy could be applied in both regular and hot real estate market. The major implication is in the area of the turnaround time for your capital. In a hot market, the turnaround time will be short whereas, in seasons when the market is slow, the turnaround time will be longer. You need to balance your desire for profit with your pragmatic analysis of the situation around you.
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