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Home flipping is on the rise and you’re looking to get into it.
According to ATTOM data, the average gross profit from a home flip in the U.S. in Q1 2023 is $56,000. This is a 4.7% increase from $53,500 in Q4 2022. Home flipping is major business, with the data showing that 72,960 single-family homes and condominiums were flipped in Q1 2023. Amazingly, this accounted for 9% of all real estate sales in that period.
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What does flipping a home involve?
You’ve been interested in becoming a property flipper for a while now. If you’re a construction professional, interior designer, or investor with some serious project management skills, you’re probably thinking this could be a great way to make some serious money.
Of course, not all remodeling projects are created equal, so you need to know what you're getting into. Sebastian Jania, owner of Ontario Property Buyers, says there are a lot of factors that come into play when calculating the net profit you can expect on a renovated home.
First, they have to be good at acquiring properties at a high price: “Most home flippers have to acquire properties at a significant discount below market value in order to renovate them and sell them at a profit,” he said.
Second, financing plays a big role: “If someone is thinking about using a hard money lender, those interest and fees can add up quickly and reduce the amount of profit they can expect,” he said.
Finally, the contractor's renovation costs and schedule are also very important, he said.
“If you can manage your own property renovations and stick to a schedule, it can save you a lot of money,” he says. “Flipping a property ultimately comes down to the three elements of a real estate transaction: money, people and the deal.”
He said a fair target for net profit on a resale home is about 10% of the resale price or expected after repairs value (ARV).
“For a $1 million property, it's $100,000, and for a $200,000 property, it's $20,000,” he says. “It's important to keep in mind that for many people, the first few homes will perform poorly as they understand the business of actually flipping homes.”
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3 ways to increase your profits from reselling homes
As an experienced property flipper, Jania knows a thing or two about how to make a profit in this industry. Here, she shares her advice for maximizing profits from your home flipping project.
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1. Hone your negotiation skills
“The No. 1 way to increase profits is to become a better negotiator or build better relationships. [you] “You can buy properties at a much larger discount,” he says. “Buying properties at a much larger discount gives you more room for mistakes and surprises during the resale, and also gives you a bigger profit if things go well.”
2. Improve access to capital
Jania said many real estate agents use hard money lenders that come with high fees and high interest rates.
“The seller resells or purchases with seller financing. [with your] “The less equity you have, the less money you pay to the lender,” he says. “More money in the reseller's pocket, and ultimately more profit.”
3. Streamline renovations
“This means lighter renovations and more strategic renovations. [to] “We're going to cut the overall budget,” he said.
Plus, he said it's important to only renovate what really needs upgrading, since there's no financial benefit to doing extra things.[This] In the end, it doesn't increase resale value and it just reduces profits,” he said.
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After all, flipping homes can be a great way to make money, but many people mistakenly believe it's much easier than it actually is.
As Jania points out, there are many factors that go into whether or not a resale property sells for a profit: While your renovation may be beautiful, you could lose money if you overpay for the property, spend too much on updates, take too long on the project, or finance it the wrong way.
Therefore, before you buy your first home with the intent to resell, it is important to be aware of the risks you are taking. Learn as much as you can about the business to increase your chances of success.
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This article originally appeared on GOBankingRates.com: Here's the average profit you can expect to make flipping a home in 2023