Real estate is well-known to be an effective generator of intergenerational wealth. This is why many people will invest in real estate even after they have purchased and paid for a home as their own residence. One strategy for real estate investing is “flipping” which means buying property and then selling it for a higher price. There are two methods usually used for flipping real estate: buying below market value and fixing up a deficient property to increase its market value. Each strategy has its own advantages and disadvantages.
Buy low, sell high
The idea behind purchasing real estate that is priced lower than the overall market is you will then be able to sell the property at the price the market is currently priced at. There could be several reasons why a property is priced below market value. The seller may have found himself or herself in some type of financial hardship and needs cash right away which means the seller will need to price the property lower in order to close a sale faster. In order to spot opportunities like this you will need to monitor the market and look for real estate priced lower than similar properties located in the same geographic area.
Another option is to pay attention to development trends and pinpoint underdeveloped neighborhoods which are set to see development efforts in the near future. Development in these neighborhoods will likely result in property valuations appreciating significantly. By purchasing prior to neighborhood development your investment will be able to benefit from this increase in market value.
Fixing up a property
Another strategy for flipping properties is to repair a property that has significant structural deficiencies. These deficiencies will be reflected in a lower market price which means the real estate will be priced below the other properties in the same neighborhood.
The drawback of this strategy is it will likely require significantly more invested capital and money. After purchasing the property, you will be required to spend significant funds on labor and materials in order to repair whatever needs to be fixed and improved on the property. Of course, if you are handy with tools and know what you are doing, you can save plenty of money by doing some of these things yourself. You just have to make sure everything complies with relevant building codes.
Combining flipping strategies
Note, you can also combine this strategy with the strategy of looking for underdeveloped neighborhoods. In this way you will benefit from fixing up the property’s structural issues as well as the upcoming development of the neighborhood.
Financial aspects
Real estate investment is not something you should take lightly. There are considerable costs and a certain amount of risk regardless of what strategy you use to invest in property. This means it is a good idea to take a look at your current financial circumstances in preparation for this type of investment endeavor. Understanding your financial situation will allow you to choose the right property investment opportunities that fit your own personal needs and financial goals.