New trends often overtake the real estate industry, and lately, the one we’ve been hearing about is micro flipping. Have you heard of it?
Real estate investors love to stay ahead of the curve and capitalize on new trends and technologies. Lately, they’ve been turning to micro flipping real estate to maximize their profits. In this guide, we’ll explain what micro flipping is all about, how it’s different from other investing strategies, and how you can start micro flipping homes yourself.
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What Is Micro Flipping?
At first, you might think that micro flipping is some kind of fix-and-flip strategy, but it’s not. It’s a type of wholesaling in which technology and data are used to find undervalued properties.
As soon as the investor identifies one or more undervalued properties, they’ll purchase them, turn around, and sell them right away. The term “micro” describes just how quickly these transactions happen. In essence, it’s the day-trading of real estate.
Micro real estate investing is a volume-over-profit strategy. You should only expect to make a few thousand dollars from each deal, but you can make a lot of deals because they go so quickly. Although you can choose to make some minor cosmetic upgrades to the properties to make them more appealing to buyers, it’s not a requirement.
During this pandemic, you might see why micro flipping has risen quickly in popularity. It’s a way to flip real estate, all from home with a click of a button. That is just one of the many benefits associated with micro flipping that has made it so popular.
Pros Of Micro Flipping
Because you can execute the majority of micro flipping from behind a computer screen, it’s a relatively passive form of investing. Your work would involve finding undervalued properties, motivated sellers, and interested buyers. There is little sweat equity involved. In most cases, you can flip a contract with no work done to the home at all.
Another benefit to micro flipping is the speed and relative ease. You can micro-flip a property very quickly, especially when compared to traditional wholesale real estate. Micro flipping can be executed by shrewdly analyzing data sets. There’s no need for cold-calling, knocking on doors, or driving around looking for properties.
Cons Of Micro Flipping
A significant downside to micro flipping is the stiff competition. Because so many investors have discovered this strategy, the market is saturated. Also, beware that your competitors are not just your usual real estate investors. You’ll be up against big players called iBuyers. Zillow, Redfin, and Opendoor are only a few of the heavy hitters.
You should also know that the profit margins for most micro flipping deals are low. It’s a volume-over-profit strategy. You should manage your expectations because you won’t be making as much per deal as you would with other real estate investment strategies. If you get into micro flipping, be prepared to make a lot of deals if you want a lucrative gig.
Is Micro Flipping Legal?
Micro flipping is legal in 49 states, with the exception being Illinois. In Illinois micro flipping is not banned, but new regulations are making it more challenging to flip contracts. When starting a new real estate venture, it is always a good idea to speak with an attorney to ensure you follow local regulations. Again, micro flipping is completely legal in the majority of the country but it’s always a good idea to review local laws before getting started.
Micro Flipping Vs. Wholesaling
Micro flipping and wholesaling have a lot in common, so it’s important to know what distinguishes one from another. First, real estate wholesaling requires more active engagement but will yield higher profit margins when done right. Micro flipping is more passive, but you’ll have to turn a higher volume since the profit margins are lower.
Another notable distinction is how much work is done to the property being sold. Wholesale investors will look for undervalued, distressed properties. These homes typically need a lot of repairs before they can be sold. In contrast, micro-flippers look for undervalued properties that require little to no work.
Micro Flipping Vs. Fix & Flipping
When you first hear about someone micro flipping houses, you might mistake it for some kind of fix-and-flip strategy. They are quite different from one another. Conventional fixing and flipping involves buying a home and then selling it after making improvements. It can require extensive renovations and can take months. This means that a good amount of capital investment is needed. The profit margin depends on the value of improvements made, whether any additions were made to the property, and whether any price appreciation occurred in the area. It can be extremely profitable but also involves quite a bit of risk if things don’t go to plan. What once could have been a profitable project can quickly turn into a money pit if poorly planned or executed.
In contrast, micro flipping is low-risk, especially if you understand the market and have multiple buyers lined up. Your capital investment is also kept to a minimum since you likely won’t be making any improvements to the property. Careful research and analysis are the keys to lowering risk and maximizing profits in both investing strategies.
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How To Start Micro Flipping In 6 Steps
We’ve discussed that micro flipping is considered one of the easier, lower-risk investing strategies in real estate. The word “easy” is relative, because you’ll need to know what to do, and how to do those things correctly, to be successful. Micro-flippers have to trade a high volume of deals in order to generate profit, so maximizing each transaction is crucial. Here’s an overview of how to start micro flipping:
Build A Team & Financing Strategy
Network To Find Buyers
Choose The Right Software
Research To Find Sellers
Close The Deal
Continue Your Momentum
1. Build A Team & Financing Strategy
Unless you have a sizable nest egg that you’re willing to use, you’ll need to figure out how to fund your first deal. Most micro-flippers go with transactional funding or hard money loans. These loans are typically short-term and are a method for investors to quickly fund deals without putting any of their own money on the table. Transactional funding lenders typically require you to have a buyer lined up. Hard money lenders will charge a high interest rate and typically require that you use the house as collateral.
You’ll also want to add a real estate agent to your team. Unless you have a real estate license yourself, you’ll need help with all the contracts for buying and selling real estate. Many investors go on to get their real estate license so that they can handle all of their transactions autonomously.
2. Network To Find Buyers
Micro flipping real estate is closely associated with networking. This is because you need to connect with interested buyers to have a successful business. You might think that the first item on your to-do list is to find viable property listings, but it’s actually the other way around.
By keeping a contact list of interested buyers, you will secure a smoother, faster transaction when you buy a property. Some types of lenders even require that you already have a buyer lined up before they’ll loan you any money.
Another good reason to network is due to the timeline of micro flipping. Because deals are designed to go so quickly, you’ll want to make sure you have a good pool of buyers to pull from at all times. Need some networking tips? Check out our 21 ways to crush it at your next networking event.
3. Choose The Right Software
Technology is the most critical aspect of micro flipping. Without the right tools, you won’t be able to identify properties to flip. Once you’ve planted the seeds of growing your buyer network, it’s time to determine what real estate software is right for you.
You can tap on your realtor’s shoulder to comb the MLS, and you can also comb for distressed properties in public records.
One of the easiest ways to find properties is to use a real estate investment software. There are plenty of products out there, and many offer free trials. You’ll want to test some out and find a software product that works best for you. Some helpful features to look for include advanced search filters and the availability of property data.
4. Research To Find Sellers
Once you’ve analyzed real estate data using software, it’s time to start contacting sellers. The key here is to use the data to identify motivated sellers. These might be homeowners who are facing foreclosure, for example.
To close the deal, you want to help the seller feel reassured that you know what you’re doing. The most successful investors find the right balance between being persuasive and knowing when to back off. Ideally, the seller wants to sell their property quickly, but they also may be going through some hardship. Make sure to give them space to think your offer over and offer them support and reassurance when needed. Many deals can be a win-win situation. You can help the seller get out of a bad situation while making a good profit margin.
5. Close The Deal
When you’ve identified a property, and the owner agrees to sell, and a buyer already lined up, that’s when the magic happens. Micro flipping deals can close within a week, and when all goes well, you should have only put in a few hours of work into the transaction. Ideally, micro flipping can be done from your computer, with a quick turnaround. Thorough planning and good systems are what are going to help you make a good profit.
6. Continue Your Momentum
Once you’ve closed your first deal, keep that momentum going! Once you get into a good rhythm of finding and closing deals, deals will start coming to you. Various real estate development companies and individual investors will see you as a reliable source of property listings. As you grow your network, you’ll also get connected with interested sellers through word of mouth and referrals.
How Much Money Can You Make Micro Flipping?
The key to making money through micro flipping is volume. A traditional fix and flip project might result in a profit of tens of thousands of dollars, but they require long timelines and significant capital investment.
In contrast, micro flipping can be done with relative ease and with just a few hours of work. How much money you’ll make from one deal depends on the circumstances, but a rough ballpark would be a few thousand dollars per transaction. The profitability of your business has a direct correlation with how many deals you pull off per month.
Keep in mind that just one transaction can give you more income than a regular day job. As you might imagine, investors who micro-flip full time can make a lot of money.
Micro flipping is the latest real estate investing trend, and for good reason. The global pandemic has created a demand for investing strategies, and jobs in general, that can be done safely from home. The key element of micro flipping is knowing how to comb through data to identify promising properties. The other piece is having the people skills to line up interested buyers. In essence, you’re a real estate matchmaker; you’re matching up interested buyers with motivated sellers. When done right, micro flipping real estate can be a win-win situation for everyone involved.
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The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.