If you have watched a property television show lately, you might be tempted to join the industry because of the way those people make it look so easy to make big money. The idea rotates around looking for a property that you transform and sell off for profit.
Steven Senkungu, a general contractor and real estate investor, says the choice to either flip property or to hold it, usually depends on a number of reasons such as the state of the market, the type of property and the amount of money invested.
“Personally I do not like the flipping business it usually has too many variables involved and things often go wrong. I have been doing renovation work for close to 20 years, for other real estate investors but I prefer to keep the properties I buy and renovate. I have seen many investors fail to sell properties after investing so much in them because they become too costly. Once in a while though if all variables line up you can make good profit,” Senkugu shares.
Before you decide whether to flip a property make sure your numbers make sense.
He recommends that if you can get someone to buy the property at a sum that covers your investment, then go ahead and sell, otherwise getting your properties rented is key, a good steady income that pays all your expenses and gives you some extra cash will grow your net worth. Even if a property does not appreciate much, you are making money; the tenants are paying down your loan and giving you equity.
Jamal Ayub, a real estate investor, reveals there are two different types of house flipping, one where an investor buys a property that has potential to increase in value with the right repairs and updates.
After completing the work, they make money from selling the home for a much higher price that what they purchased it for.
The second form is when an investor buys a property in a market with rapidly rising home values. They make no updates, and after holding the property for a few months, they resell at a higher price and make a profit.
Ayub insists that if flipping is done properly, it is actually a great investment. One of the ways to do it right is not to get a loan to either buy or renovate property.
“Renovations are hard to budget for and can be risky, so doing them with borrowed finances increases the risk and the pressure. I know real estate investors who have had to lose their properties or sell them cheaply just to pay off a money lender,” he notes.
Know the market
Senkungu notes that newcomers fail to read the market trends and end up paying heavily for their mistake.
“I have seen young people become excited after making profit from their first investment. Instead of pausing to study the market, they take all their profit to their next project and consequently make losses,” he notes.
The contractor recommends looking for properties that are cheaper but have potential to become better and attract high income earners.
“If you are new to the industry, it is better to hire a seasoned property agent to get you to the right neighborhoods based on your price point, budget for renovations, and desired profit,” Senkungu adds.
Flip the smart way
The contractors recommend focusing on specific renovations instead of overhauling the entire house.
Hire a contractor to thoroughly inspect the property before you commit to it because it is always better to spot problems on the front end than be surprised down the road.
Avoid the expensive furnishings instead; consider a smarter renovation that focuses on refinishing the existing cabinets, adding granite counters and replacing appliances. You will spend less, with a lot higher likelihood of recouping your costs.
Pros of flipping
The main reason people enter into a real estate flip is with the hope of making money quickly. If done correctly, a real estate flip can provide very large profits, often upwards of the annual US. median salary. These returns can be achieved in a very short period of time, and in many cases in only a matter of months.
Increase your network
While undertaking a flip, you will create many new contacts in the industry, including realtors, attorneys, contractors, building inspectors, insurance brokers, and other investors. These contacts can come in handy for a future investment, so you must always remain professional during your dealings with these individuals.
Another advantage of a real estate flip is being able to see the potential in a property that few others can see. Knowing that you have the vision to create value in a home is a source of great personal pride, along with the ability to achieve financial returns that are far superior to most other investments available to the average person.