Everyone is looking for a quick way to make a major profit on an investment. One method that is exciting some is flipping houses.
For those of you who have never heard the term, flipping a house is a great example of the old adage of buy low and sell high. It is the process of buying a house, renovating it, and then selling it for a profit.
It is not inconceivable for a savvy investor who knows the housing market to make a profit of more than $100,000. However, there are some caveats to consider including the state of the economy and in what city you plan to perform the conversion.
If you are contemplating a flip now, then you may not be getting the return that some have made at previous times. According to RealtyTrac, the return of investment of converting a home has dropped by 10 percent in just the past year. It was 31 percent in the second quarter of last year and 21 percent in the second quarter of this year. The average gross profit for a flipped home is about $46,000. The price the investor acquires and sells a home is taken into account. Not considered are the costs of renovation, other costs involved with the re-construction, and the cost of selling the house. The decline in profit is being blamed on fewer discounted and distressed homes available on the market.
Still, flippers are making profits. Investors who buy a house to flip for between $750,000 and $1 million have achieved an average gross return on investment of 41 percent. The amount of the return on investment also concerns in what city the flip takes place. The cities that are giving investors the best returns are Pittsburgh, New Orleans, and Baltimore.
7 Tips to consider when selecting a house to flip
So how do you know what house is a good candidate for a successful flip? Here are seven tips to consider.
- Find a source that offers a good database of available homes. One good resource is the Multiple Listing Service (MLS) . You can also consult with an agent or research for websites that permit you to customize an advanced search that includes prerequisites you want in prospective flipping houses including number of bedrooms and uarbathrooms, sqefootage,prd ani ce range.
- Have a good understanding of the real estate market in the locality where you plan the flip. It would be a good idea to consult with real estate groups in the area.
- Consult regularly with an expert who is familiar with the process and the cost of renovating a home. A person who satisfies these conditions can assure that you won’t undervalue the cost of the reconstruction, which can affect your return on investment.
- Find a cheap house. Attend tax auctions, short sales, probate and estate sales; consult with home wholesalers; and check the local newspapers.
- Visit properties. Go with someone who knows the market and someone who knows the process and the cost of renovation to give you good advice as you inspect homes.
- Seriously consider houses that need major work and involve numerous building permits. It is these homes that commonly produce the larger profits.
- Investigate whether the house you are considering is being offered nearest the lowest price. Therefore, check websites that offer comparable sale price information to assure that you are purchasing low price property.
As with the case of any investment, there are risks involved. For example, as discussed earlier, profit margins on flipped homes have slid. Moreover, flipping houses are more successful in some neighborhoods than it is in others. So be certain that you do your homework as you seek the pot of gold at the end of the rainbow.