The old adage, you have to spend money to make money, is particularly true when it comes to real estate investing. Flipping houses could be an excellent way of building wealth.
Flipping houses for beginners
Reality TV continues to glorify house flipping as a great real estate investing opportunity. Many of these programs feature an investor, real estate agent, and staging to sell homes for high profits after making low investments. Is this type of investment strategy as easy as it looks?
We learn from a new research report by ATTOM Data Solutions that, during 2019, investors flipped nearly 246,000 condos and single-family homes across the USA. The report further indicates that this total is up 2 percent from 2018 and is the highest number of flips since 2006.
What is house flipping?
House flipping is when you, the investor, purchase a property, hold on to it for a short time frame, and then sell it for a profit. Instead of purchasing homes to live in, these individuals buy them as part of their real estate investment plans.
There are instances when an investor must make renovations or repairs before they can flip a home. There are other times when investors must hold on to a property until they can earn back the home's cost, plus any renovations and repairs either in rent, or in depreciation. When an investor completes work to increase a property's worth, that's referred to as forced equity.
There are three keys to successful house flipping:
- Buy low and sell high.
- Make improvements that add value.
- Earn a profit in a short time frame.
How to get started
One thing to remember is that it's impossible to start flipping houses without a plan. That's where Gatsby Investment makes things easier for first-time investors. We specialize in flipping single-family homes under $1 million because of their high demand and easy finance options for buyers. Those two factors make these homes easier for us to sell. Our team also keeps time frames between 6 and 12 months to allow each investor the fastest and highest possible return.
Locate an investment property
Our team is selective and skilled at scouting critical locations that allow for faster permits. Our experts identify the property's transformational potential before initiating a purchase. We understand that every house is unique. Therefore, we look for ways to add the most value based on the property's individual needs. That could mean adding square footage, an ADU (Accessory Dwelling Unit), or transforming the home's hardscaping, landscaping, and layout. This process also involves our experts analyzing the estimated cost for construction compared to the anticipated sales price to ensure profitability.
Submit an offer and make a purchase
After raising the entire investment amount, Gatsby Investment purchases the property. We create a custom design by working with award-winning architects, The Landry Design Group. For over 30 years, they've been creating world-class house designs featuring innovative architecture and uncompromising quality. After the architects complete the design phase, we can apply for the necessary building permits.
Create a schedule for your contractors
Every house goes through exterior and interior renovations. Because we work with a large construction company, we can delegate every worker to various areas of the build simultaneously. That means we can complete projects in excellent time.
Sell the investment property
Gatsby Investment handles the entire process from beginning to end. When flipping houses, they:
- Raise money from investors
- Buy a home with transformation potential
- Manage the entire flipping process
- Add as much value to the home as possible
- Sell the house for a profit
- Disburse money back to the investors
Investing in a house flip
There's a saying that you should buy the worst house, on the best street, if you want to make money in real estate. In Los Angeles, it isn't uncommon to find homes for well under $1 Million on a street where other homes have sold for much higher. These homes might be old, damaged, have occupants that can't afford to fix them up, or have been owned for many generations. Maybe these homes require too much work for one person to start the process, so they want to sell them instead. These are the types of homes that our team scouts for and grab because, to us, they're goldmines.
For us, house flipping is much more than giving them a facelift with some paint. Before making a purchase, our professionals look at what each unique home needs to add the most value. If you aren't sure what you're doing or what to look for, a house flip can easily turn into a flop.
What sets our houses apart and makes them such a profitable investment is the combination of the finished product and the short time frame in which we can complete projects. Flipping a house is approximately a six to 12-month investment that starts from the date Gatsby Investment opens the investment opportunity. That's followed by purchasing, designing, permitting, renovations, and the final sale before it ends on the day of disbursement.
What percentage of house flips fail and why?
According to RealtyTrac 12 percent of property flips break even or sell for less than their expenses. That data also reveals that up to 28 percent of flips see gross profits of less than 20 percent of the home's initial purchase price.
How much should you make on a house flip?
According to a new report by LendingHome, Los Angeles investors saw a net profit of over $100,000 from flipping houses over the last four years. The report further indicates that over a quarter of California's flips happened in Los Angeles County. A separate report by ATTOM Data Solutions reveals that, nationwide, flipping is at a 10-year high.
Can you get rich flipping houses?
Depending on where you live and the flip's location, some investors earn more than an average annual salary after buying and selling one property. For example, research from ATTOM Data Solutions shows us that a seller's gross profit from a flip average is $67,902 during the second quarter of 2020.
Flipping houses for a living
House flipping for a living isn't for the faint of heart. If you were going it alone, you'd need to complete a significant amount of hands-on work and put in a lot of elbow grease. You'd also need exceptional people skills, a thorough knowledge of construction and finance, and a knack for negotiation.
Consulting with professionals
Gatsby Investment takes care of all that for you. We give you access to these flips without all the angst, and for a much lower upfront investment. We have established a comprehensive team of contacts and professionals who know how to get the job done.
What helps make our company unique is that we expand on each home's charm. With the help of the Landry Design Group, we can pick the best color combination, fit, and style to create a functional and personalized home. We ensure that we do every part we can to the house to maximize its value.
Low initial investment
Accredited investors can start with Gatsby Investment for a low minimum investment starting at just $15,000. From that, we build a pool of money with which to purchase and rebuild an investment property for flipping.
Each investor shares in 50 percent of the net profits, if any, based on their final share of the total investment in the property.
Researching the competition
You can avoid over-investing in renovations and upgrades by looking at other properties in the neighborhood. Gatsby Investments takes care of all of this research for you to ensure the highest profitability. For example, before making a purchase, they'll ask "What is the property missing compared to those in the area?" Experts also analyze what most buyers looking for. Conducting this research prevents investors from spending too much on upgrades and helps identify the right changes to make.
Start investing today
If flipping houses was always something you were interested in, but you were too scared to flip a house yourself, we can help. Gatsby Investment lets you flip houses for a low minimum investment, and without the time-consuming angst of managing a building project. We have a long track record of profitable returns, so you are able to grow your money with less risk.