Not everyone purchase a property like home, farmland, etc for their personal use. Some people find properties as a source of investment and with increased market value; they can sell at a higher price to gain profits. But, there is also a process called flipping, where real estate properties that generate significant revenue are bought and immediately subjected for resale to earn money.
Common scenario of flipping
People do not have time to cater to the renovations, refurbishing, repairs, etc. when they buy a property. This is when flipping comes to play and builders or interested persons can actually buy such properties, fix all the repairs associated with the house and then resell it at a higher price to gain some profit. This is often called ‘fix and flip’ process and is a fail proof mode of income. Flipping is considered a perfect short-term investment strategy that works based on the liquid markets. This is carried out mostly by institutional investors rather than individuals. They buy several properties together in localities where there is hope for big developments soon, fix them and sell after several months.
Factors that determine the success
Not all flippers benefit from the process. It takes several factors to determine the profit margins. Investments, location of property, market value, choice of renovations play roles in deciding the profit. Learning and understanding of the local real estate market is the basic step to engage into flipping. Not everyone has ready cash for such huge investments. Many people end up unable to sell property after spending a huge amount in purchase and repairs. Hence, it needs thorough planning for proper credit to buy the property and to carry out the renovations.
Follow 70% rule for success
Experienced realtors like nicki zvik say that besides knowing how much you can afford to invest, it is also important to know the amount you can afford to lose. When you are new to flipping, the 70% rule can be of great help. It states that the purchase value of a property should not exceed the value of 70% of after repair value minus cost of repairs of a particular property. This is a golden rule that prevents overpayment for a property.