Smartness in the only key to get success for flipping houses in Minneapolis business in 2020. Checkout the step by step guide to generate more cash
A few years ago, flipping houses was all the rage. Fast forward to 2020, flipping houses, also referred to as ‘fix and flip’ is still reigning strong. A simple strategy for generating profit, flipping houses comprises buying a property at a low price, renovating it, and selling it for a higher price. Considered a property investment strategy, it involves multiple layers of planning, costs, documentation, and coordination. A great deal of work, you will have to set up a timeline, settle on a budget, oversee the project, collaborate with contractors, buy insurance, etc. Before you become a house flipper, look through our guide for flipping houses in Minneapolis, as learning everything you possibly can help you make a profit.
Is Flipping Houses Still Profitable 2020? – The Pros & Cons
Like every other thing, there are pros and cons to the process of flipping houses. If you are wondering about ‘is it a good time to buy a house in Minneapolis?’ the elements below-mentioned can help you decide whether to go ahead.
The Advantage of Flipping Houses
Make A Quick Profit
The primary reason people step into a real estate landscape is with the hope of making money quickly. If done effectively, a real estate flip can provide rewarding profits, typically upwards of the annual U.S. average salary. These returns are accomplishable in a brief period, and frequently in only a matter of months. If this is your first experience flipping a house, you are more than likely to experience a few obstacles, which may prolong your timeframe. However, the faster you can flip a house, the greater the return on investment (ROI) potential it has.
Flipping houses entails the capacity to educate you further about a variety of other elements, such as the local real estate market, construction, unexpected costs, buyer insights, etc. In doing so, you will also expand your network, as you’ll make contacts with attorneys, contractors, insurance brokers, investors, realtors, building inspectors, etc. These people can come in handy for future investment if you wish to pursue flipping houses as a profession. That said, you must remember to stay professional during your interactions with these individuals.
Polish Your Skill set
Another great plus point of a real estate flip is being able to visualize the potential in a property that others overlook. Moreover, knowing that your vision can create value in a property can be a source of personal gratification, as you will be able to make profits far better than other investment options.
The Problems of Flipping Houses
Lose Money Instead Of Making A Profit
The major problem with flipping a property is that you can potentially lose a lot of money. Several factors can contribute to this loss, such as unexpected expenses, high taxes, holding costs, difficulty in selling, etc. Accompanying you throughout this process is stress, as a tremendous sense of responsibility is riding on your shoulders.
Overestimating your capacity will likely cause issues with your flip. For instance, most people think they can manage more of the improvement work than what they actually can. This not only prolongs the project but also throws off your budget. It would help if you were practical when it comes to the budget, as it’s essential to consider what improvement work you can handle by yourself and what time frame do you expect your job to wrap up in.
An informed investment decision arises from having an all-inclusive overview of the house flipping process. Given that most successful investors turn down 90% of deals that come across them, do not allow yourself to get discouraged during the process. If you do your due diligence, you will do just fine, as you will know which property to pass on and which one to stick onto.
What Is Better, Flipping Houses, Or Renting Houses?
When deciding between renting and flipping houses, make it a point first to determine the difference between active and passive income.
Active income is any income earned through day-to-day work. If you stop working, the income also stops coming. For instance, active income is the money you earn from your day job or any money you generate from flipping a property.
Passive income is any money you receive from your investments every month. Irrespective of what you are doing and where you are, the income keeps coming. For instance, receiving rent on your rental properties every month is a form of passive income.
Flipping a house can earn you a lot of money in a comparatively short amount of time. On the other hand, renting a correctly typically produces less upfront income, yet, produces income consistently over a long time. With your property’s value increasing over time, a steady stream of monthly income, and tax incentives, renting properties is optimal for those who prefer less work and a stable flow of money.
What Is The 70% Rule In House Flipping?
When deciding the maximum price, you should consider paying for a property, and you should consider the 70% Rule. The 70% Rule of real estate investing stipulates that you should not pay more than 70% of the after repair value (ARV), minus the repair costs. For instance, if a house’s ARV is $100,000, and it needs repairs of $25,000, then according to the 70% rule, the maximum an investor should pay for it should be $45,000: $100,000 multiplied by 70% = $70,000, minus $25,000, which equals to $45,000. The idea is that cutting out that 30% will give you room for other expenses and profits.
The 70% Rule is valuable for the house flipping process, as it helps you analyze whether a potential deal is within the right framework. While it is not recommended for you to make offers based on the 70% Rule, you can use it as a guide for evaluating any prospective opportunities. Hence, by merely following the 70% Rule, you can make sure you make a profit, instead of overpaying for a property or losing money. Also, if you’re wondering, ‘what is the average time to flip a house?’ it roughly takes 180 days in states with a stable real estate market and 203 days for countries with a poor real-estate market.
The Effect of COVID-19 on the Real-Estate Landscape In 2020
Living in unprecedented times, you may have to factor in the effects of COVID-19 when looking to flip houses. Financial markets have crashed due to the pandemic, and house prices will most likely follow. With buyers waiting for stabilization within the global markets, most cities on ‘lockdown,’ and most buyers’ affordability compromised, you might not be able to get a profitable return on your project. If you are wondering ‘how much do house flippers make a year’ – the figure will shrink owing to the present scenario of 2020.
Can You Get Rich By Flipping Houses?
It is common for most people to wonder whether flipping houses is worthwhile. In reality, flipping houses is a lot of hard work, where high costs, high-stake decisions, and increased risks are involved. If you end up being wrong about the value of a property and pay too much, you will be doomed before you even start. However, given that everything is fixable, you need to control your budget.
As a rule of thumb, veteran property developers use a minimum profit on the value of 20% when valuing their project deals. The reason for choosing 20% is that various things can go wrong in house flipping. The accurate estimation of all costs involved is never easy to do. Therefore, this value offers you a margin of error, leaving you with enough to gain a profit if anything goes wrong.
If you settle for an ROI less than 20%, then your margin of error contracts, and there is a bigger chance of you losing money through your house flipping project. Thus, it is your responsibility to ensure you minimize your cost for maximum profit.
The Pros & Cons of House Flipping In 2020
- Several real-estate opportunities within the US can potentially yield an ROI on house flipping above 20%
- It might be possible to find some good bargains right now or in the near future
- You may have to find a property in an unfamiliar area to gain your desired ROI.
- Borrowing may potentially be more difficult and expensive.
- You may have to wait for a longer period to sell off your renovated property.
Flipping houses works in your best interest when there is a stable, high demand within the real estate market. Only professional house flippers can do well in a declining market. So, if you are just about thinking of becoming a house flipper, try to have a firm grip on Minnesota’s housing market, be patient, and be focused.
Despite the current scenario, by only doing your homework and researching, you can overcome any setbacks. An average home in Minneapolis is worth $239,200; therefore, it is up to you to find cheap houses in good locations. You can always improve a property, but you cannot do anything about the neighborhood. Look for areas that have low crime rates, rising real estate prices, good schools, etc., as these are leading factors that are considered by prospective buyers.
Minneapolis is one of the best cities for house flippers, which is why to make it a point to look for houses that require minor upgrades and repairs. Try to avoid homes that are money traps, such as damaged piping systems, damaged roofs, etc. In addition, given that, you are new to flipping homes and unsure about ‘what is a good return on a house flip?’ acquiring the appropriate professional’s expertise can help you find top-rated locations.
How Do You Flip A House In MN? – To Take a Loan or Pay Cash
If you can afford it, the optimal option is to pay cash for houses to flip. There is a significant amount of risk involved in flipping houses. In some instances, repairs can take longer than expected. Thus, if you pay cash, you will not have to pay interest for the period you are taking to get the property renovated. On the contrary, if you opt to take out a loan for flipping houses in Minneapolis, you can be pushed to sell your property for a lower cost, merely out of desperation.