As the evening news reflects, investment in the stock market has been on the decline. Equally, investors are averting bond investments, certificate of deposits and other \”safe\” investment vehicles. As current conditions dictate, real estate has also taken a significant hit. What was a sound investment just five to seven years ago is now on the decline as property values have significantly fallen.

Real Estate Investment

Practically everyone owns real estate, even if their name isn\’t on a deed. Many mutual fund investors have real estate assets in their portfolios, even if their investors do not realize it. Homeowners are another type of real estate investor. They realize gains through the process of accruing equity in the home as the mortgage is amortized. With each payment, more of the principle is retired, ultimately creating a nice little nest egg for retirement.

Yet another type of real estate investment is done through purchase and renting or purchasing to sell. In the case of the former, the investor seeks to rent a property for an amount over or equal to the monthly mortgage and related property expenses. When the mortgage is paid off, the rent becomes profit, less property tax and other expenses. In the latter investment, a buyer seeks to make the necessary repairs and \”flip\” the home by selling it for more than he or she paid for it.

What is Flipping?

As mentioned, \”flipping\” is the process of buying a home only to sell it for more than the purchase price. This is done through conducting due diligence to determine the property\’s true market value. The investor attempts to buy at or below market value. To ensure this prospect, investors typically only choose homes in need of repair. Repairs are made, increasing the market value of the property. The home is then sold for a profit.

As with any investment, there is risk. The risks are mitigated by estimating the return on investment. This is accomplished by taking a non-emotional, unbiased look at the property, thereby revealing the cost of the investment and its return.

Pros

– Transferring Ownership: Once a property is sold through flipping, the investor is not responsible for paying the property expenses and does not have to pay any more out-of-pocket expenses.

– Income Potential: The potential income on flipping properties is only limited by the aggressiveness of the investor. Investors that stay in the home while doing most of the rehab work will find an even greater return on their investment. Flipping makes an investor his own boss and can also be done on the investor\’s schedule.

Cons

– Capital Investment Requirements: Flipping homes requires a significant amount of capital to execute the strategy. This includes not only the purchase price, but the cost of remodeling and/or repairing the home as well.

– T.O.M: Time on the Market is the amount of time a property may sit before being purchased by a third party. Obviously you will want to sell as quickly as possible, but you have very little control over how long it will actually take. As such, this presents an incremental risk because the longer you hold the property, the greater your carrying costs.

Is Flipping Still Viable?

The short answer is yes. Regardless of current state of the market, home values will certainly rebound sooner or later. Only investors that choose to offload a home during a downturn will realize a loss. Those that weather the downturn can rent the property and realize a profit when real estate values again rise.

As any property guru will tell you, one of the most blatant wastes of money in the real estate business is PMI. Check out our site to learn how to avoid this, as well as browse hundreds of other great articles focused solely on rental property investing.

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Author Bio: As any property guru will tell you, one of the most blatant wastes of money in the real estate business is PMI. Check out our site to learn how to avoid this, as well as browse hundreds of other great articles focused solely on rental property investing.

Category: Real Estate
Keywords: real estate, flipping, real estate investing, real estate flipping