House Flipping in Today’s Market – Know This First
You probably have watched tv shows that depict contractors transforming houses that are eyesores into jaw-dropping homes, which they then fetch top dollar for. The truth is that transforming an eyesore into something every person may desire to live in and even pay top dollar for is not as easy as you see on TV shows.
If you want to get into the house flipping business, you must learn a few things that are quite critical to house flipping. But worry not, as this guide highlights everything you need to know about house flipping before diving into the industry.
Understanding House Flipping
House flipping is buying a house to dispose of it quickly. In most cases, the house will be in a state of disrepair and often sell for a substantially low figure. After purchasing, the buyer makes some improvements to the home and re-lists at a profit.
The time you may need to hold a home may vary based on market demands, but typically house flipping involves holding a home for not more than a year or at least until it can fetch the value for which you bought it at.
House Flipping Is Still a Profitable Business
The real estate industry has changed significantly since the rescission. But the house flipping scene is seeing a significant increase in activity, making it one of the areas you should consider investing in, in 2023.
According to statistics, house flips accounted for over nine percent of all house sales in America in 2021, the highest rate since 2000. While the profit margins for flipping homes may not be as high, the median profit made by house flippers is approximately $67,000 per flip, which is still a decent profit.
House Flipping Can Go Wrong
Like any business, house flipping can go wrong, and you could end up making a loss. In most cases, losses will result from getting your math wrong. But there are situations where you could think you have nailed your budgets but still get it wrong and consequently make losses or get pretty low-profit margins.
To solve this problem, you will need to leave some allowance in your budget to compensate for when it spills over, such as when the cost of construction materials increases.
Another reason flipping can go wrong is when you hold on to the house for longer than anticipated. In such instances, you get to pay property tax, insurance, and high-interest rates for the short-term loan lenders offer to house flippers.
Therefore, whenever possible, it is always a good idea to seek mortgage lending to finance your house-flipping business, as mortgage loans allow for much better rates than short-term loans.
Returns Can Vary By State
While investing in house flipping is a profitable venture, the ROI you get depends on your geographical location. Some of the best cities in terms of profit for house flip investors include Scranton-Wilkes-Barre-Hazleton, Pennsylvania; Kingsport-Bristol, Tennessee-Virginia; Reading, Pennsylvania; Phoenix, Arizona; and Charlotte, North Carolina. Factors that make these places the best for house flipping include the low cost of construction materials, growing population, and strong local economies.
The worst markets include Boise City, Idaho; Fort Collins, Colorado; College Station-Bryan, Texas; Sacramento-Roseville-Arden-Arcade, California; Santa Rosa, California; and Tyler, Texas. The return on investment in these areas is often below ten percent, a margin too close to making a loss.
Is House Flipping a Good Investment Option
There isn’t a yes and no answer on whether house flipping is a good option for you. The best approach is to understand this business as a realtor, as highlighted in this post, and make an informed decision based on your circumstances.
Also, it can help engage with players who have been in the industry for a long time by joining online communities.