Flipping houses for profit can be an excellent business model, but the key term here is for profit. Today we are going to take a look at how to ensure you are flipping houses for profit and not just for fun.
I work with many investors, both novices and those who have been in the business for years. The investors that are flipping houses for profit on a regular basis all seem to have the same general business plan. Of course that is buy low sell high, but in today’s market, we need to be a little more specific.
While there are many business models to follow when flipping houses for profit, the one we are going to look at today focuses on entry level housing.
Entry level housing is a great place to be in today’s market. With almost 50% of homes underwater currently, the trade up market is not as strong as the entry level market. People who missed the boat on the last cycle and did not buy before home prices got out of hand are now ready to jump into the market after the recent correction in home prices.
In addition to a built in market for the entry level homes, there is another benefit to targeting this market. Financing is difficult these days, even for the most well qualified borrowers. Many investors are putting the same property under contract with multiple buyers before finding a buyer who can close. This is true even with buyers who are pre-qualified.
By targeting the entry level market, the closing ratios are typically higher. In addition, if you do have a buyer fall out, the carrying costs on an entry level home are much less than if you target the middle to high end. Having to carry a loan for 6-12 months will eat into your profit.
One last benefit we will look at today of targeting the entry level market is the cost of rehab. Typically, your cost of rehab on an entry level home is less than it would be for something on the high end. You do not need to put in high end upgrades to sell an entry level home. Curb appeal and a clean property go a long way. For investors looking to get started flipping houses for profit, the entry level market is the place to start. Even for seasoned investors, the entry level market continues to be very profitable.