Real Estate Investing Guide: The Flip Strategy
As we frequently watch on HGTV, the flip strategy is one of the most common Real Estate Investing strategies! It is really as simple as it gets - you purchase a property, do some renos to boost its value, and eventually put it back on the market to make a profit. However, even though it sounds easy, doing a property flip actually takes a lot of time and effort. Let’s take a look at what the flip strategy entails and how you can get started!
What Is Flipping?
Most simply put, flipping a house involves buying a discounted property that needs a little TLC, and then investing money and/or time into the renovation process Once the project is completed, you sell the property for more than you paid for it, including what was spent on the renovation.
With a short holding period, this investment strategy allows you to make a quick profit and take advantage of short-term value boosts rather than going in for the long haul. Income property investing, on the other hand, is a long-term game that requires you to manage a property, deal with tenants, and handle everything that comes along with that.
That is why the flip strategy provides the benefit of making a quick ROI. Once you renovate the property and sell it, you’re done with it and you can just move on to the next one. However, keep in mind that there is a certain level of risk tied to this strategy as there is no guarantee the price of the asset will increase during the short time frame.
How Flipping Works
There are two types of flipping strategies out there. The first one is a quick flip where you find a property in a rapidly growing market and resell it quickly just to get as much ROI as possible. In the second scenario, investors look for rundown properties that need renovations, they purchase them at a lower price, do some renos, and finally resell for a lot more than their initial investment. This is known as a reno flip.
While I personally prefer income properties and investing into rentals in general, I’m not opposed to good flip opportunities. However, this strategy can come with a certain level of risk, especially if you decide to do flips in hotter markets that change frequently. If the conditions of the market change in the middle of your flip project, you might be left with a lower profit or, even worse, a depreciating asset that cannot be sold.
Keep in mind that doing flips requires far more knowledge than many other investing strategies. In the reno flip, you have to increase the property value above the cost of the purchase, the renovation, and the closing costs. It takes a lot more planning and budgeting to be carried out profitably.
Is Flipping the Right Strategy for You?
If you’re not sure which real estate investing strategy to follow, you’ve got a lot of thinking and planning to do. If you prefer less of a hands-on investment, then wholesaling might be a better choice for you. Flipping as a strategy to make money with real estate requires a lot of time and work. If you’re not truly passionate about the different aspects of a flipping project, you’re most likely better off doing something else.
At the same time, flipping can lead to great ROIs and turn into a very profitable venture, as long as you know how to find lower priced properties and put together reliable renovation teams. If juggling costs and capital sounds like something you’d excel at, then flipping is definitely worth a try.