House flipping - Is it for you?
Category Property Advice
You probably would have heard about house flipping on one of those DIY television shows, but have you ever considered it as a fast lucrative investment?
What is house flipping?
The term house flipping was coined in America. It is used to describe the process of buying, rehabbing, and selling properties for profit. The main purpose of house flipping is for the property to be bought with the intention of a quick resale. The average timeframe often ranges from a few months up to a year between the purchase and the sale.
In a nutshell, an investor will buy a house that has the potential to be increased in value. After repairs and updates to the house, the investor can make a profit by selling the property at a much higher price than what it was purchased for.
Types of house flipping
There are two major types of properties can be considered for a flip.
In the first instance, houses or apartments can be bought below the current market value in a distressed sale. The second type of house flip is a fixer-upper. The fixer-upper usually is a property with structural, design, or condition issues that can be fixed at a reasonable price.
Pros of house flipping
Quicker return on the investment
The quick return on the property investment is definitely the most attractive feature of flipping a house. Unlike buying a property and keeping it for a few years, investors are able to identify possible profits instantly while having their capital tied up for a short amount of time.
Eliminates the hassle of tenants
Since the investor wants to sell the property as soon as possible, there is no need to derive an income from tenants. This saves them the hassle of finding tenants, collecting rent, and maintaining the property.
Helps gain experience
House flipping can help investors gain more experience and enhance their knowledge in many other areas. This can include construction, landscaping, electrical, and more. The investor will also get familiar with real estate jargon, know the difference between a buyer's and seller's market, the local property market, as well as identify what can increase the value of a home much easier.
Safer investment
There are many ways to invest one's money. Stock, bonds, retirement funds, and annuities, are less predictable and can decline in value overnight. House flipping is considered a safer investment strategy as it keeps the investor's capital at risk for a minimal amount of time. If financially possible, the investor has the option to hold on to the property if the markets are bad, until it rises again.
Cons of house flipping
Costs involved
Aside from paying for renovations and improvements to the home, transaction costs can be high on both the buying and selling side. Some of these costs include transfer costs or attorney fees. They can significantly affect the profit that can be made from the flipped house.
The risk factor
First-time house flipping investors need to conduct as much research as possible before purchasing a property to resell. If the investor buys a house in a bad neighbourhood it may become difficult to attract buyers. Buyers tend to go for houses that are close to schools, shopping malls, as well as entertainment amenities. Another risk to avoid is spending too much money on renovations. A buyer may not need certain features in a home that will drastically increase the selling price of the property.
If you are keen on venturing into the strategic investment of house flipping, contact one of our agents at Knight Frank Properties today. We will assist you in securing your next profit-making property.
Author: Knight Frank
