For those who want to break into real estate investing but have no clue (nor enough capital) to get into the business, micro flipping just might be the thing you’re looking for.
Micro Flipping Defined
Micro flipping real estate might seem like a complicated concept since it is relatively new compared to the traditional fix-and-flip that most house flippers are used to. But it really isn’t that hard nor complicated. The term just sounds fancy and sophisticated but it’s very easy to understand and a lot easier to execute.
So what is it exactly? It is simply real estate wholesaling using technology and data. It is nothing like the fix-and-flip scenario that’s typically associated with house flipping.
It is a short-term real estate investment strategy where an investor looks for inexpensive and viable – mostly undervalued – properties online to sell fast. It is a short-term strategy in that no amount of rehabilitation or renovation takes place.
A huge chunk of the micro flipping population are iBuyers and larger companies such as Zillow and Opendoor. These companies leverage technology to acquire undervalued properties and convert each acquisition to a quick, albeit minimal profit, sale without renovating or improving them.
This is a pretty good business model for them to work with because it eliminates the need for a middle man, in this case, a real estate agent. This ensures that they no longer have to give any commissions to a third party and can completely pocket the minimal profit they make off of the sale.
Newbies and individual investors should find out more about iBuyers first before they get into this type of business because they will be the main competition with this particular real estate investment strategy.
How does Micro Flipping Work?
As we have already mentioned, micro flipping is somehow similar to wholesaling and other real estate contract flipping methods with some noticeable differences. Typically, this method involves the same process but varies in its approach to each step.
Just like any other real estate transaction, finding the right property is the first step to becoming a successful micro flipper. But unlike other methods, micro flippers shouldn’t just settle for any type of property. The house has to be below market value since the margin for the return on investment is very minimal compared to a full-on fix-and-flip deal.
This is where technology comes in. Having the right tools to aid you in finding the right property will spell the difference between success and failure. While there are several tools available for this task, Mashvisor’s Property Finder and Real Estate Heatmap are two of the most efficient and easiest to use tools available online today.
Experienced and rookie investors can use the Property Finder to look for the most profitable properties in different markets across the country. The Real Estate Heatmap, on the other hand, helps them analyze data and key metrics in a particular neighborhood or area in the US housing market. By using these tools, real estate investors are significantly increasing their success rates, which is very important considering the very small profit margin with this particular approach,
Once the suitable property has been identified, it is not time for negotiations to take place. This part is very important as micro flippers would want to keep the acquisition price as low as possible. This step of the process might take a little more effort on the part of investors compared to the traditional way of flipping houses.
Since not all sellers are willing to go way below market value for the properties they had listed, micro flippers should keep an eye out for the more motivated sellers. These are people that need to make the sale as fast as possible or are avoiding foreclosure on their property. Either way, they want to make it happen in as short a time as possible, even to the point of giving in to some of the investors’ terms. Their motivation – in some cases, desperation – to sell makes them budge and give in to an investor’s offer.
Making the Sales to Buyers
Typically, micro flippers already have existing buyers before they even make the purchase. This is, perhaps, the safest way to ensure a speedy turnover. If investors don’t have any buyers in line, they will end up spending more with carrying costs than they want which is not part of their computations. This means they will have a smaller profit which goes against the very idea of getting into business in the first place.
For micro flippers to get the most out of the deal, they need to sell these undervalued properties fast. And having buyers already lined up for properties makes the process faster.
Micro Flipping, Wholesaling, and Fix-and-Flip: What Are Their Differences?
Now that we’ve defined micro flipping and how it basically works, let’s talk about the more obvious and subtle differences they have with wholesaling and the traditional fix-and-flip approach.
Micro Flipping vs Wholesaling
First, let’s talk about wholesaling.
Real estate wholesaling is the process of getting into a contract with a seller and assigning the same contract to an end buyer. The acquisition of property is the same in the sense that:
- wholesalers look for and buy properties that are way below market value;
- negotiate with sellers to get the lowest price possible; and
- find cash buyers interested in buying the said properties.
As we’ve already mentioned earlier, micro flipping is pretty much wholesaling real estate properties with the main difference being its use of technology and data. It also doesn’t require as much physical work since micro flippers are usually sitting on their desks and working on a computer most of the time. With this in mind, the capital needed to fund an investment is slightly lower because of lower overhead costs and operational expenses. This makes wholesaling one of the best short-term investment strategies, especially for those who are looking at breaking into real estate investing.
Micro Flipping vs Fix-and-Flip
Now when it comes to comparing micro flipping with traditional house flipping, perhaps the most obvious similarity is that investors buy properties to resell at a profit. That’s pretty much where their similarity ends.
While the former is all about the speedy transition between investors buying undervalued properties and selling them at a minimal profit, the latter requires more thoughtful planning and execution.
A traditional house fix-and-flip also starts with purchasing a house that can be upgraded and updated to be sold at a significantly higher amount. The profit margin is a lot higher with house flipping compared to the digital technological approach that micro flippers take. However, this also means a much longer holding period for traditional flippers because of the time needed to rehabilitate and renovate the house. In this case, it could take several weeks, at the very least, up to a few months depending on the home improvements needed.
The longer wait period means that investors should have more access to capital, experience, and time as well as be prepared to face more risks. The upside is that traditional house-flippers are rewarded oh-so-generously with great returns on investment.
The Pros and Cons
All investments and businesses have their own advantages and disadvantages. Micro flipping is no different.
Some of the things that make micro flipping an attractive business venture for real estate investors are:
- The fast turnaround time for transactions to be completed. This means there is very minimal wasted time, energy, and money which is very valuable given the small profit margin this business has to offer.
- No home improvements to worry about. The idea is to sell the property in as short a time as possible. Micro flippers don’t need to worry about home updates and rehabs. They just serve as middlemen between the owner/seller and buyer.
- Micro flippers have a bigger backyard. In contrast to traditional flippers and wholesalers, micro flippers can buy and sell any property in any state since most of the work is done online.
- A very minimal start-up cost is involved. Although investors should still initially shell out money for the transaction, it isn’t as big as other real estate investment methods.
On the other hand, micro flipping is shunned by other real estate investors for the following reasons:
- It requires a certain level of tech-savviness. While this is not to say that older people aren’t tech-savvy, a lot of them have already developed lifelong business and professional habits that are very difficult to break and replace, including leveraging technology for business. In most cases, they would just rather hire people to do digital things for them.
- The competition is fierce and plentiful. Remember iBuyers? They’re the biggest competitor for any individual micro flipper. Plus there are also the wholesalers.
- The returns are very small considering that it is a real estate-related business. To make a quick sale, micro flipping doesn’t really offer much by way of profit, unlike traditional fix-and-flippers who can make up to more than twice their initial investment.
How does One Get Started?
If you’ve gotten this far, then you must be really interested in micro flipping as a business. The fact that it is one of the easiest ways of getting into real estate investment is already enough for a lot of folks to get started. Now how does one get started with it?
Here are the very basic steps to becoming a micro flipper:
1. Get the Right Financing Option
One of the main things that make micro flipping attractive to investors, especially first-timers, is it doesn’t require big capital to get started. As far as funding is concerned, there are two major ways to go about it.
One is to buy and sell in cash which really isn’t as friendly to newcomers since most beginners don’t have that much excess cash lying around to fund their initial venture.
Two, investors can opt to go for hard money loans from private lenders under the condition that the money will be paid back in a short period. While the obvious downside to this is most loans will have higher interest rates, it is still quite popular among beginner investors as it gives them easy access to capital.
Once an investor has already figured out the funding aspect, a sound financial strategy needs to be drawn and implemented.
2. Find a Good Partner or Ream to Work With
It is also highly recommended that investors, both veterans, and newbies, have people they trust to work with. In this case, a real estate agent with a good reputation and extensive experience can bring so much wisdom and knowledge to the table. A partner or a team that has years of experience and industry knowledge can help investors make the wisest and soundest decisions that result in highly favorable results.
Mashvisor can help connect investors to knowledgeable and credible professionals by using this real estate agent directory.
3. Select the Right Software and Tools
Technology is the main tool that micro flippers use to locate the right properties to resell. That being said, having the right equipment, tools, and software will play a huge role in one’s involvement in this line of business.
Mashvisor is designed and built to help real estate investors succeed in business with the different tools we have online. Whether you’re looking for the right property, analyzing data, crunching the numbers, searching for the right real estate agents, or just wanting to get some sound financing tips, we have everything investors need to break into the industry and navigate it easily.
4. Put in the Work and Network
A big chunk of a micro flipper’s success is hinged on knowing and connecting with the right people. This goes for both buyer and seller.
Most people have the misconception that micro flippers must first look for properties and then buyers when in fact, it’s the other way around. To speed up the sales process, investors should already have a list of buyers lined up and then they set out to look for properties online. This makes the process a lot more efficient overall.
Investors should also research to find the right sellers and connect with them as soon as they can, lest an iBuyer beat them to the punch. As we’ve already mentioned earlier, the best type of sellers is the motivated ones, those who are in a rush to get properties off their hands. Identifying motivated sellers will require investors to perform their due diligence and sift through all sorts of data.
5. Close the Deal
If an investor has already identified a property to sell and a buyer lined up for it, all he or she has to do is get the owner or seller to agree to the offer being made.
Most successful micro flippers know the art of persuasion in closing a deal. This does not mean being persuasive in an abrasive manner. It just means that the investor knows how to negotiate well, make a convincing case for the offer without being insensitive to the seller’s needs. When done right, the entire process can be done and over within just a week’s time, or even less.
6. Take Advantage of your Momentum
Lastly, if the deal has been successfully closed between all parties involved, the investor should keep going and build up momentum. They should take advantage of that to find their rhythm so they know how to play the game better.
Is It for You?
The bottom line is, micro flipping is a great way of getting new investors, especially the tech-savvy ones, into the industry. However, just because we’re living in the digital age and everyone has access to a computer and an internet connection doesn’t mean that it is for everyone. It takes a special kind of aptitude and attitude to succeed in this particular line of business, especially since one has to comb and sift through a whole lot of data to spot those promising properties.
The good thing is there are several other ways of breaking into the real estate industry such as wholesaling, house flipping, and renting out residential properties (both long- and short-term). It’s just a matter of finding which one aligns best with your goals and financial situation.
To learn more about how we can help you make faster and smarter real estate investment decisions, click here.