How much do you know about house flipping? This article explores house flipping from the perspective of a beginner and tackles subjects such as important things to know about flipping, whether you should sell or rent the properties you flip, and what house flipping is like as a landlord.
House flipping and home renovations are an exciting topic for many property investors and owners, prompting thoughts of HGTV-style home improvement and the satisfaction of a job well done. Many investors dream of buying a property and restoring it to beautiful condition to make a tidy profit. But is house flipping all it’s made out to be? Is this a good investment, and if so, how should you get into it?
House flipping is the practice of buying properties at relatively low prices, renovating them, and either selling them for a profit or renting them out for more than the property would have originally rented for. It is a trendy way for many people to get on the property ladder, especially for investors who do not start with much money. Here are some important things you may want to know about house flipping as an investor, landlord, or property owner.
Key Things to Know About House Flipping
House flipping can be a risky investment, but it can also be quite lucrative if you know how to find the ideal property, fixes and upgrades that will appeal to renters or buyers, and how to make those upgrades quickly and efficiently. According to Investopedia, a common rule is to avoid paying more than 70% of a property’s expected value after renovation minus the cost of those renovations. This ensures that you are at least making some profit on your investments.
Another important factor to consider is the time investment of a renovation. A property sitting empty can get expensive fast, so it’s important to ensure that your renovations are as quick as possible, whilst maintaining quality and desirability for buyers or renters. As such, it is essential that you have reliable, trustworthy people doing the maintenance, or that you are an experienced DIY-er before taking on a project as significant as home renovation.
House Flipping for Landlords
House flipping can be a great way for landlords to save some money beginning their investment journey, especially if they are handy in some way or another. You can purchase an investment property, modify and upgrade it to appeal to your rental market, and charge higher rent than you would have on the property previously. This allows you to invest in rentals with a lower initial cost of entry, making it a great route for new landlords.
Similarly, you can purchase your first home, fix it up, and rent it when you eventually move out if you are a true beginner to homeownership or property investment. Alternatively, you can fix and rent houses, then sell them whenever you deem it most beneficial, creating a long-standing investment in a house flip. However, you should note that this may require you to update or repair the home again before selling, as the wear and tear of renters can be significant.
Learn more: Should I DIY My Rental Property Maintenance?
Fix and Flip or Fix and Rent?
Ultimately, deciding whether to flip a house or rent it after repairs depends entirely on whether or not an investor wants a fast turnaround or passive income. Selling immediately provides a high, fairly fast payout, which can appeal to someone who wants to jump onto the next project as quickly as possible, but renting provides consistent income over a longer period of time. You can do either or both depending on what appeals to you as a property investor.
You can fix and rent multiple properties, but it is ideal to take these projects slowly at first and not overcommit to renovation projects. When you have the experience, capital, and contacts to run multiple projects at once, this concern may fade. Ultimately, both options are great for a handy purchaser to get into ownership and investment.
Learn more: Buying a Rental Property vs. Fix and Flip – Which is Better?
Final Thoughts
If you are a hopeful investor with either a penchant for handiness or knowledge of helpful tradespeople, house flipping might be for you. You can purchase at lower costs, improve neighborhoods you buy in, and either sell for a profit or create a long-term source of passive income. As an added bonus, home renovation also allows you to exercise some creative freedom in the appearance of these properties. Consider this form of investment next time you are about to purchase a home or investment property.