So you spent the weekend binge watching “Fixer Upper” and thought to yourself, “Hey I can do that!” There is something about Chip and Joanna Gaines that does make “house flipping” seem approachable, aspirational and downright fun. But where does one begin? And how do you take it from a side hustle to a full on financial freedom?
You don’t have to watch HGTV to find success stories coming out of the house flipping trade – chances are, there is someone in your inner circle who has either has a side hustle, or who has even made a full time career out of “flipping houses”. An investment property can be a great way to diversify your financial portfolio, but where do you start? How do you mitigate risk and set yourself up for long-term success?
The term “house flipper” became somewhat synonymous with the real estate boom of the early 2000s, where many individuals aimed to “buy low and sell high” in an effort to claim their stake within the rapidly rising real estate market. This first part of this century found a proliferation of people diving head first into the business of buying real estate property, then sitting on it just long enough for it to gain value, and sell it for a profit. For many of these, the real estate crash wreaked absolute havoc on their new found revenue stream.
Despite the real estate bubble burst of early 2006, the house flipping industry, along with the real estate industry as a whole, has enjoyed a return to growth mode. Over the course of the past 10 years, the real estate market has managed to stop the bleed, stabilize and start generating opportunities, once again, for income-generating lucrative real estate investments. An analysis from Core Logic Inc. assesses that close to 11% of all homes sold during the fourth quarter of 2018 in the US were designated as “flips” – or homes that were resold within two years of the original purchase date.
If the idea of flipping houses still seems too risky for you, there is a different investment strategy that centers around buying an investment property without the intent of reselling in the short term. If managed correctly, you can secure an incremental, ongoing revenue stream through purchasing a property for the purpose of renting it out for the long term. While margins may not be as significant in this rental model vs. the true flip model, residual income can continue as long as the property is rented at a higher value than it costs the owner per month – making this strategy attractive to investors that are more risk averse.
“Rental properties represent a great way to get involved with real estate investments. Emerging neighborhoods offer growth potential and tax incentives for buyers. Buyers that purchase properties in emerging neighborhoods maximize profits and ensure that their income covers their costs”, says Home Qualified’s President, Ralph diBugnara. Property investments in neighborhoods on the rise allow you to maximize your investment dollars, while securing return on your investment through rental of the property.
So you’ve secured your first rental property and are making a profit each month. What’s the next step? You may be ready and eager to continue investing and generating additional revenue. It is important, however, to be calculated in your strategy and not over leverage yourself. “You can be very successful for a long time and still go broke if every rental is mortgaged to the hilt” says Corey Chappell, an analyst at 181 Close Now. “If you keep some of your rentals free and clear and some of them financed then you’ll have a good mix of safety and still stretching your resources. Do it right, and a few longer than expected vacancies or dips in your cash flow doesn’t have to the end of your career,” he advises.
Often times the difference between making money and losing money in the flipping trade is found in the level of expertise and knowledge one has relative to the complexities of the real estate industry. Finding a trusted expert and leveraging their capabilities in the real estate investment industry can mean the difference between success and failure.
One such expert, Turnkey Property Pro, works with investors to identify long-term goals and to find properties that best align well each investor’s specific needs. This can give investors a competitive edge in a cluttered space, filled with competition.
Bottom line: By first knowing how to identify the most potential for an investment property, and leveraging in-market expertise, investors can mitigate risk and maximize profit within the real estate investment arena.
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