House flipping is a real estate investment strategy where investors buy a property intending to resell it for profit. However, it may sound simple and easy but it has more to it than what the name suggests. First and foremost, it is not a cakewalk to find and acquire a property for reselling, it needs a strategy and an understanding of the real estate industry. So, if you are interested in house Flipping in California and are looking at it as a prominent investment strategy, read further to know all about it.
How does Flipping Houses Work?
Realtors or Investors who are motivated for flipping houses usually target and purchase properties that are either in Probate sale or distressed or properties from the Absentee Owner List. If you are planning to enter the real estate investment space for house flipping, you must know to use your money wisely.
The first step towards flipping houses is to find undervalued properties and invest in them. However, you must also know for a fact that these properties are not easy to buy and you need to invest even your time and resources to get hold of such properties.
Once you purchase the property after a lengthy legal process, you need to spend on the renovation of the property to get a good price for it. It is also advisable that you conduct an appraisal of the property before investing. The appraisal will educate you on the market price of the property and let you make an offer so that you end up having a profit after flipping the house.
The 70% Rule of House Flipping:
The standard process of house flipping includes investing in a distressed property from a probate sale or bank auction at a low cost. However, while you pitch a deal you need to be aware of the 70% rule to be able to earn a significant profit from house flipping.
The 70% rule of house flipping states that an investor should not pay more than 70% of the property’s after-repair value minus the repairing prices of the property. The after-repair value is the value of the property at which flippers can sell the property after renovating it.
To maintain the 70% rule, investors should make a thorough estimate of the after-value of the property and also the amount that will be used for making the necessary repairs. The 70% rule is a general thumb rule for house flipping and accounts for a good return on your investment.
As an investor, you should study the market well, discuss it with real estate professionals for accurate resale estimates, and contact contractors for exact repair value. Having a well-planned estimate will eliminate the chances of loss in a house-flipping business.
What is Micro-Flipping?
Sometimes, you can come across properties that require limited renovations on your part. This opportunity is known as micro-flipping and can be a great option if you are looking for faster sales and is not interested to conduct any renovations.
However, for micro-flipping, you need to analyse the data and identify the opportunities to acquire the property at a low price and resale it for a good value. The most important aspect of micro-flipping is that you need to do it quickly without holding the property for a longer period. The success behind micro-flipping is that you can process a high volume of real estate transactions quickly.
The Most Important Steps In House Flipping:
Here are some of the essential steps that would make your house-flipping business seamless and a success:
- The first step is to find properties that will be available at prices lower that the market value. For that, you can try finding properties in the Absentee Owner List, probate sale list, bank auction list, etc.
- Next start by doing some research on the neighbourhood and the market value of the property. If you are a novice in this industry, it is recommended that you work closely with a real estate agent who can guide you thoroughly on the process and advise you on certain aspects.
- Implement the 70% rule in your budget plan to avoid losses.
- Build a resource network for construction and renovation so that you have a team to work with and can get the best service. Find professionals like real estate experts, insurance agents, contractors, etc. who will be an important pillar for your business.
- The other most important step is to decide on the finances of the project. If you are short of funds in your hands you need to apply for a pre-approved loan. A pre-approved loan will make sure that you do not miss out on the chance of acquiring a property because of a shortage of funds.
- Once you get the ownership, you can start working on the renovation of the property. In this case, try to look for contemporary and more popular interiors for the house as that will attract buyers and you can resell the property for a good deal.
Final Thought
House Flipping in California can be a profitable investment and you can earn good returns from it. However, all you need to do is plan well and consider the financial details so that it becomes a viable business option. Make sure you apply the 70% rule and you are all good to go.
