Posted on: December 18, 2012
There are many ways to invest in real estate. One of these is to purchase homes that are for sale under value, to spruce them up and then to sell them again. The slang term for this activity is called “flipping” and it means that you quickly flip, or turn over, the property. Is it a good idea to invest in this way in real estate? Is it for everyone?
The first thing to know is that you can’t use your VA home loan to flip houses. Also, other types of loans generally should not be used to flip a home either, since lenders don’t want you to pay off your mortgage a few months after opening it, whether or not there’s a prepayment penalty. Ask your trusted financial advisor about loan options, such as business loans, that can be used to flip a property.
In addition, anyone interested in doing multiple real estate deals must be financially secure or have partners willing to participate in the costs. Not only will capital be needed to cover the closing costs, but to pay for the home improvements and the mortgage during the renovation time, when relevant. Certainly, while real estate investors of this ilk hope to make the money back and to see an ample return on their investment, they must also recognize that they might make less than they anticipate, or that they might even take a loss. For these reasons, investing in real estate by flipping homes isn’t for everyone.
For those who do want to get started flipping homes, it’s best to do so in a market where the investor is already comfortable and familiar. They should get to know the value of the properties in a specific area and become an expert in that location. They should go to open houses and get a feel for what buyers want in their particular market, and to determine whether sellers in their area are willing to part with their the property below the asking price. They should also see as many “junkers” as they can, and learn everything there is to know about home inspections. Furthermore, investors should familiarize themselves with what home repairs cost so that they can accurately estimate what they will have to invest in a property in order to prepare it for resale.
The two things any real estate investor must know if he or she plans to flip homes is how much the property will be worth once it’s fixed (specifically, what prices the local market can support) and how much capital will be required to get the home ready for resale. Only with these facts properly understood can a real estate investor have the full view of the potential for profit.
One popular approach to flipping properties is to identify a neighborhood that has homes in the 25-35 year old range. Neighborhoods like these often have a wealth of homes that are structurally stable but are outdated internally. The investor will be able to focus on mostly value-added repairs with these types of homes, such as updating the home with paint, flooring, a few new appliances and landscaping, without having to invest significant sums into major repairs. This is a good place to start, as it often creates a lower-risk opportunity for new real estate flippers.
It goes without saying that there is a plethora of other real estate investment opportunities to consider, but that those with little experience in the real estate world should pursue their options cautiously and intelligently, as they would pursue flipping, so that they can maximize their returns and minimize their losses.