Wednesday, April 11, 2012
Blog Post 2
Flipping property is a common real estate investment that many investors commit to. The term flipping property refers to buying property with the intent to resell it for future profits (Connars, 2011). Flipping property may lead to large amounts of profit, if it all goes well. If something goes wrong, it can also lead to large amounts of loss. But then again, if big risks aren’t taken then big rewards won’t come. In other words, big investments must be made in order to receive large amounts of profit. There are three major types of properties that most people consider flipping. One type of property is commercial buildings. Flipping commercial buildings requires detailed analysis of what the business may require. The other type of property is residential homes. The advantages of flipping homes are endless, along with the profits acquired from doing it. It’s easy to assume that everything will go as planned in order to make the house flipping a success, but to actually follow through with it may not be so easy. Common issues can easily cause house flipping to become a failure. The final type of property flipping is one of the least popular ones; farmland flipping. Farmland property doesn't require much labor, but it can still be a long process. In fact, flipping any kind of property, house or building can be a tough task as well as a big headache is things don’t go as planned
The most common type of property that people flip is houses. Even though house flipping seems like an easy task, it can be a nightmare. The obvious way of looking at the investment is to buy low and sell high, much easier said than done. Many factors should be accounted for before investing in the property. These factors include money and time. According to Connars, a good piece of advice before investing in homes is to create a budget (Connars, 2011). More often, new comers underestimate how much money they are going to spend and end up losing money instead of earning a profit like they had suspected. The types of properties that are good investments are undervalued or decent shape homes that require minimal investment before selling it (Connars, 2011). This strategy makes foreclosed homes golden for investors looking to flip homes. Renovating and flipping house takes a lot of time. First thing that is required in order to flip a home is to find a home to flip. It can take months to search for a house in the proper budget and even after the house is purchased the renovating is going to take some time (Smith, 2010). If the property was severely damaged, the owner must schedule for an inspector to make sure that all codes are up to date. If the inspection fails, the owner must invest more money to fix the problems (Smith, 2010). Even after all the time and money is invested to buy and refurbish the house, more time and money is required to advertise the house for sale (Smith, 2012). Flipping homes can be most profitable if the investors are able to perform most of the skills required to repair or remodel homes. Knowledgeable and skilled investor may get a little more money for their investment because they are able to make their own repairs. Professionals who thrive in flipping houses may consist of carpenters, plumbers or other professional handy man (Smith, 2012). In fact, if the carpenters or plumbers are working for a union, they use their time off to fix up old homes and flip them for their own profit (Smith, 2012).
As mentioned earlier, flipping houses is not the same as flipping commercial property. A common mistake people fail to realize is that a commercial building is used for business. Every business is unique and requires different things (Roberts, 2012). This means finding an old run down building and just fixing it up may not be the simplest plan, which is why it is a good idea to know what kind of business may possibly run in that location. However, commercial buildings and residential homes do have a few things in common. Just like in homes, if the buildings are in adequate shape and not up to standards they will sell for cheaper (Roberts 2012). Properties like this will be a great deal cheaper than newer well-maintained properties (Roberts 2012). Before purchasing the building, it is important to know information about the area, property, maintenance requirements and total estimating cost of repairs (Roberts 2012). As with homes, if the investor is able to perform the work themselves the profits will be much higher. A good rule to follow in flipping property is, if it’s not broken don’t fix it. Many investors spend more money on things that don’t need to be replaced or repaired. This can put the investor’s budget in major deficit. According to Ursula Roberts “Go for simple changes like landscaping the building, painting the paths, replacing flooring, painting the interior or expanding the parking lot.” Also, pricing for a commercial property is different from the pricing of residential homes. Commercial buildings are priced according to the cash flow it generates (Roberts, 2012). Keeping these factors in mind, investors can make large amounts of profit if they know what exactly they are looking for and how to manage their budget.
The least popular of all is flipping farmland. Flipping farmland is completely different from flipping commercial and residential property. When flipping commercial or residential homes you want to sell as soon as possible to get a good return. When it comes to farming it’s better to buy now and wait until the land has increased in value. In Chicago, Illinois the farmland value has went up 23 percent in just one year (CNN, 2012). David Erickson and his partner bought over 11 million dollars in farmland, hoping in the future the land’s value will go up (CNN, 2012). This is a great risk that investors must take if they decide to go this route. However, they must realize that the value will not always go up. You can buy land for fifteen thousand dollars an acre today, but tomorrow that price may drop down to ten thousand an acre. Then, you’re faced with a dilemma whether to sell it before it goes down even further or wait until the prices will go up. Also, farmland has potential to become more than just fields for crops. If a housing market wants to build in the area where investors have bought land, it can be a potential jackpot. The same concept applies to other buildings such as shopping malls, apartment complexes or schools.
Overall, flipping property can be a profitable investment. There are many different options that can make investments profitable, such as spending money only on necessary changes that need to be made to the property. Also, investments can be as small as residential homes and as big as commercial buildings. This all depends on how knowledgeable the investor is on the type of property he or she wants to flip. Farmland maybe be the easiest property to flip, but may require more funds than most people have. Farmland also requires money, time and patience. Overtime, farmland can end up being the most profitable investment depending on the land value at the time. In general, basic requirements for property flipping are time, knowledge and patience. Investors need to realize that flipping property requires a great deal of time, especially if the refurbishing is being done by the investor. A budget is an important factor when it comes to flipping homes and commercial buildings. The overall goal of the investment is to earn a profit, which is why a budget is needed to keep the investor aware of how much funds are available and how much can be used for certain things. If everything goes well, flipping property will turn out to be a profitable decision.
CNN MONEY REPORTS.
Connars, Tiffany. "How House Flipping Works" http://home.howstuffworks.com/real-estate/house-flipping3.htm. 2011
Smith, Lisa. "Five Mistakes that Make House Flipping a Flop"http://www.investopedia.com/articles/mortgages-real-estate/08/house-flip.asp#axzz1rZcrZ6sO. 2012
Ursula Roberts. "How to Flip Commercial Buildings" http://www.howtodothings.com/finance-real-estate/how-to-flip-a-commercial-building 2012