If you are relatively new to the business, you may think that the only way to invest in real estate is by flipping houses. House flipping is certainly a popular and profitable way to invest, but within flipping there are many different options to choose from. Just like no two properties are exactly alike, no two flips are the same either. Regardless of what your investing goals are, you can find a flipping exit strategy that is right for you.
Despite what you may think, investors have been making a lucrative living by flipping houses for years. The short sale and foreclosure boom brought about many opportunities and properties that were ripe for flips, but a flip can happen in any market – given the right conditions. By definition, a real estate flip is acquiring a property and then selling it within a short period of time for a profit. In most cases, you will need to put some work into the property to generate value, but this is not always the case.
The most popular flip, and the one shown most prominently on TV, is the rehab. This may seem like a slam dunk, but there is a lot of work that goes into this process. It starts with finding a property in a good location. You may think that any type of work you do will add value, but this is often not the case. If you don’t do the right work, with the right quality, you can end up wasting thousands of dollars without getting a return. The final step in a successful rehab is pricing the property correctly and getting it sold. The longer the home is on the market, the more likely you won’t get the sales price you are looking for. The traditional rehab flip can be very profitable, but you need to know what you are getting into every step of the way.
If you don’t have the capital or time to work on a rehab yourself, you can opt to get in and out via a wholesale flip. There are many investors who have made their mark primarily through the wholesale side of the business. The key to these deals is finding discount properties that still have some value and getting them at a price that works for your plan. Once you get the property to contract, you can then assign that contract to an end investor for a fee. This fee ranges anywhere between $5000-$15,000, depending on the property or the specific deal. It is a win for the end investor because they get a good deal that they would not have otherwise had access to. This works for you because you get paid on a property that you didn’t have the time, means or desire to work on. If you do not have excess capital, this is a good method to get started or grow in the business.
Not every flip deal will require a complete overhaul. Doing work is one of the surest ways to add value, but many properties just need a little tweak. Instead of rehabbing every room, you can make minor changes that can increase the value. New flooring, fresh paint and updated appliances are sometimes all it takes to show the property in a new light. If you don’t want to empty the bank account on a full rehab, you can opt to do the little things. You may not get maximum value, but you can take a profit and move onto the next deal.
The final way to flip a property is to flip it with the intent to lease. There are still many good real estate deals out there that can be tremendous additions to your portfolio. Instead of flipping and selling, you can buy, fix and look to attract renters. With interest rates as low as they are, you can often buy properties and pay down your principal with the cash flow you receive. A lease property will not offer the short term satisfaction, but if you buy one or two rental properties a year, you will feel the impact five or ten years down the road.
Flipping means different things to different investors. There are many different ways to flip a house that can be profitable and make sense for what your goals are. The most important thing with any flip is to know that any work you do will have the return you are expecting. You can make a flip any way you like and do anything you see fit with the property. Just because one investor wouldn’t wholesale a property doesn’t mean it isn’t right for you and what you are trying to accomplish. There are many ways to flip a property. Find the best way for you.