Flipping houses is still very popular in the US housing market post-recession. A report from ATTOM Data Solutions found that the home flipping rate hit a six-year high in the first quarter of 2018, as a total of 48,457 single family homes and condos were flipped. However, as we approach the New Year, real estate investors wonder if starting a house flipping business is still a good investment choice.
This is a tricky question to answer because the real estate market is not the same as it was six years ago. However, it seems that the changes in the industry are not stopping property investors from finding good opportunities and making profits from flipping houses! It really depends on how you’re looking at the market and the way you find profitable investments. Let’s take a look at the different trends happening right now that will make a house flipping business profitable in 2019.
#1 Home Supply and Prices
Six years ago, flipping real estate was the best investment strategy for someone who had an eye for rehabbing properties to make extra cash. This is because the housing market was flush with vacant properties and foreclosures due to the housing crash a few years earlier. At the time, a real estate investor could buy a house from a bank, make necessary repairs, and then sell it at the top of the market.
The current supply of real estate properties coming on the market each month is lower. In addition, home prices are predicted to rise in 2019, making it challenging for property investors looking for houses at rock-bottom prices. Nonetheless, with today’s strong economy, more and more potential house flippers have that extra cash in hand, just waiting to find the right bargain to start a house flipping business. The only thing that has changed is how you find these cheap properties.
For example, real estate auctions are still a hot place to explore and, with a good network, you can find off-market properties with motivated sellers. Furthermore, the fact that property prices are on the rise could actually be good news for house flippers. Seeing as supply is not catching up with demand, you can sell the flipped property in 2019 at market price (or even higher), and increase your profit margins from your house flipping business.
Related: US Housing Market Predictions: What’s to Come in 2019
#2 Return on Investment
According to the above, we can say that flipping real estate continues to create strong returns. In fact, the ATTOM Data Solutions report states “Homes flipped in Q1 2018 sold at an average gross profit of $69,500, up from an average gross flipping profit of $68,250 in the previous quarter and up from $66,287 in Q1 2017 to the highest average gross flipping profit since ATTOM began tracking in Q1 2000.” Furthermore, this average gross flipping profit translated into an average 47.8% return on investment compared to the original acquisition price!
Having said that, anyone thinking of becoming a house flipper must not forget the basic success factors in this real estate business – most importantly time and location. According to the PwC’s Emerging Trends in Real Estate 2019 Report, the key for today’s investor to succeed in a house flipping business is the ability to execute by 2020. In addition, the report also advised property investors to stay away from markets where property prices are rising rapidly. Instead, emerging markets are the best places for flipping real estate. If you’re aiming for short term rental properties, an Airbnb calculator can help determine future profitability.
Using a real estate investment tool called the Property Finder makes it so much easier for an investor to find cheap properties with high ROI in the best locations. Do you have a free Mashvisor account? Use our Property Finder to find investment properties that match your criteria in a matter of minutes!
#3 Profitable Opportunities in the Suburbs
Speaking of the best places to start a house flipping business, numerous predictions of the 2019 US housing market indicate that suburban neighborhoods are where investors will find the best opportunities. While it might be hard to find a property to flip in a tight market and make a profit, the suburbs are packed with profitable properties with the potential to be flipped for high returns.
Related: Buying an Investment Property in the City vs Suburbs in 2019
Furthermore, experts say property investors should start exploring new neighborhoods. ATTOM Data Solutions’ report supports this, claiming that “The sweet spot for successful home flipping is finding the neighborhoods just emerging as the next hot neighborhoods.” Remember, you can flip real estate, but you can’t flip an entire neighborhood on your own. Remember that as you evaluate the neighborhood where you want to buy an investment property.
When starting a house flipping business, don’t be tempted to buy cheap properties in low-income neighborhoods. The higher crime rate and the number of foreclosures will bring down your property’s value and give you a harder time re-selling. Instead, start your business in emerging suburban neighborhoods near school districts with employment growth and low crime rate. These factors assure that the flipped property will sell and bring you good profits.
How to Start a House Flipping Business
Are you convinced that flipping real estate is the right investment strategy for you? Then keep reading to learn how to become a house flipper in 2019 in 5 simple steps:
Step 1: Create a Business Plan
Because your house flipping business is intended to make a profit, you need to have a real estate business plan with profit expectation. Write down specific goals, type of properties, number of projects, projects’ timeline, financing sources, and marketing strategies. Your business plan will help you figure out what you need to achieve your goals and it’ll encourage lenders to take you more seriously.
Step 2: Hire the Right Professionals
House flipping professionals will help you better understand how to get into house flipping, how to prevent mistakes, and ensure your business is following legal guidelines. These professionals include attorneys, accountants, realtors, and contractors. Moreover, make sure the people you hire know how to do their jobs well from the first time – this saves you money in the long run.
Related: How to Make Money Flipping Houses – Tips for Maximum Profits
Step 3: Set Your Financing Plan
Good news for those thinking of starting a house flipping business: You don’t necessarily need to have the capital to buy property with cash! Many first-time home flippers borrow from friends and family and tap into their 401(k). There are also other financing options for a flip that you can turn to. The most common ones are hard money loans, rehab loans, and investment group loans.
Step 4: Find the Right Property to Flip
The next step is to identify the right property to meet your return on investment expectations. As mentioned, the neighborhood should be your main focus. Thus, take the neighborhood’s location, amenities, and market statistics into account. Then, analyze your target property in term of its condition, issues that need to be fixed, and the estimated after repair value (ARV) to assure it meets your criteria.
To start looking for and analyzing investment properties in your city and neighborhood of choice, click here.
Step 5: Buy, Flip, Market, and Sell
It generally takes 15 – 30 days to close on a property and a realtor will help you negotiate the sales price. Then, it could take 30 – 120 days to renovate the property (depending on its conditions) which is where your contractor and other professionals will help. As soon as renovation is complete, start marketing the property. When it comes to selling the property, it may take just a few days or months, depending on pricing and the local market.
As a house flipper, you need to know that every day the property is not sold is another day of paying holding costs. So, the faster you complete the renovations, the faster you can market and sell the house and make a profit from your house flipping business.
The Bottom Line
If you’re thinking of becoming a house flipper, don’t hesitate any longer! 2019 is the year to start flipping real estate as market trends show that this investment strategy is profitable and can bring high returns.
One last thing to keep in mind is that a house flipping business remains a risky investment, so make sure you’re 100% ready to enter this business. Using real estate data can reduce such risks so sign up now for a 7-day free trial with Mashvisor (with a 15% discount after!) to find lucrative investment properties to flip and follow the above step-by-step guide.