The business of real estate has always been a big draw for entrepreneurs. There are stories of people who have made small fortunes by dealing in the real estate market. An entrepreneur can operate in the real estate market in a variety of ways. The entrepreneur can be a real estate agent, bringing together buyers, sellers, and making a commission of 4 percent to 7 percent on the sale price. Another option is to flip houses. This activity has potential for greater returns.
What is Flipping?
In flipping, the entrepreneur buys real estate and then resells it at a higher price. The flipper aims to sell it as early as possible, because the earnings are dependent on how many properties the flipper can turn over. Integrity is an important aspect of this business and the flipping process is as legal as the person doing it. There are three options for an investor to flip properties.
The Scout: The method of operation is to identify an under-priced property and sell the information to a buyer. The obvious advantage is that the flipper does not invest capital but only trades on the information. The expected return is $500 - $1000 on a transaction.
The Dealer: After identifying an underpriced property, the dealer signs a purchase contract with the owner, paying earnest money in the process. The dealer may now sell the property outright to another investor or, alternately, sell the contract. The profit potential is greater and returns of a few thousand dollars a month are possible depending on the time invested.
The Retailer: In this method, the investor buys the underpriced property with the help of a real estate agent, rehabilitates and improves it to the extent required and sells it at the going rate to an owner-buyer. The risk element is higher since the investor must deploy most of the capital to finance the purchase. The returns are also the highest.
Finding Undervalued Properties
While locating bargain properties is no easy task, it is possible to find some around even when the markets are at their peaks. Sellers who are compelled to go in for a sale for a variety of reasons can always be found. These reasons could range from foreclosure to death in the family to divorce. Foreclosed properties offer the most attraction since the owners, who could be banks or other investors, are willing to settle for much less than the intrinsic value of the property. Below are some useful hints.
Do detailed research on property values. Know the prevailing market rates so that you can make a realistic assessment of buying and selling prices.
Try to identify prospective buyers even before actually acquiring a property so that you know the client's affordability.
Work out the economics realistically. Factor in all costs like the 6 percent realtor commission, repair costs, time, and labor.
The business of flipping properties can be very rewarding for entrepreneurs. You do not need a license to practice, you benefit from low overheads and you haveflexible work hours. A thorough knowledge of the real estate market is an invaluable asset in this line of work.
