Why Become a Flipper Investor?

Flipping properties – where a property is purchased undervalue, rehabilitated and then resold at a profit – has become very popular in the last decade, but in order to do it successfully, you will need to understand several things.

Factors to Consider Prior to Investing in Flip Properties:

  1. Profit – As with any investment in real estate, this is the most important consideration, but even more so with a flip. Many flipper investors will not purchase a property for a flip unless they know they will make a minimum desired amount of profits. You will need to understand what the potential is, and this requires lots of research. The most important factor is LOCATION and market time. Your agent can educate you on comparable properties that have sold in the area, and differences in price due to whether they were updated or not.
  2. Costs – Skilled flippers understand what it will take to turn a property for a high profit almost immediately, especially if they work with a trusted construction crew and know the timing on the demo and installation of new upgrades. Many first time flippers could end up in hot water if they do not understand what is needed to flip the property, or if they begin construction and discover hidden issues. It is imperative to understand what the costs will be prior to making an offer, so have your contractor do a full evaluation of the property immediately.
  3. Hidden Expenses – It is important for flippers to take into consideration hidden expenses that may arise during the updating process. For example, when floors are pulled up a cracked slab may be discovered, plumbing or electrical issues may arise. A good home inspector can alert you to some of these issues before you start, but you need to take into consideration the age of the property, type of plumbing, and age of the roof and other big-ticket items that could end up adding more to your rehabilitation budget than you planned.
  4. Timing – Timing is crucial to flip projects, as the longer it takes to remodel the project, the longer it is off the market and costing money. It is critical to work with a contractor whom is reliable and can stick to a timetable. I have had flippers who missed the boat on making a high profit because they took too long to get the work completed and markets changed during the interim.
  5. Future Sale – Calculation of future potential sales price, after you have rehabilitated the property, is critical. Your agent can assist you in finding comparable properties that have sold in the area and have been remodeled, to give you an idea. If remodeled homes are not selling for too much more than what you paid for the property, then you need to consider your remodeling budget and see if the investment makes any sense. There are many factors to consider, like location and whether the property is located in a community that is in the process of gentrification or has already undergone the process – up and coming areas are great places for flips. If there is no supporting evidence of recent past sales that would compare to your project after remodel, it is advisable to have an appraisal – the appraiser can take into consideration the planned upgrades and the time it will be ready to list, and estimate a potential sales price that would be sustained by the market at that time.
  6. Tax consequences – As with any investment, speak with your accountant or financial advisor prior to purchasing a flip property. With new tax laws and depending on your financial position/corporate holding status and tax brackets, you will need to understand how your purchase and sale will be taxed.

Flipping is not something that should be entered into without doing a lot of research and calculating rehab expenses and future sales price. If done correctly it is a great way to invest and can provide a nice return on your investment. We are happy to discuss further what you need to do to be a successful flipper.

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