Of all the ways to get into real estate investing, realty rehabbing also known as flipping houses is probably the approach that people are most familiar with. Home rehabbers, more commonly known as flippers, are featured on multiple cable channels, many of which are dedicated to home improvement. Sometimes the flippers have even achieved celebrity status. However, what is shown in TV programs is only a small slice of what a realty rehabber does when flipping a house. With some know-how and motivation, it can be profitable to take an undervalued property and make something out of it.
Real estate investing, in general, offers an attractive asset profile that brings in all manner of investors. Real estate is far easier to understand and conceptualize than most other forms of investment, as there are no esoteric mechanisms involved. Real estate is a physical property that many people can reasonably value without cracking open an economics book. Further, real estate is an excellent counter to inflation, as the market responds to inflation by improving in value.
What makes the realty rehabber opportunity is often the future potential is not immediately visible by the common home owner, or it is too much to get involved with. These make realty rehabbing possible. Depending on what the investor is willing to put into the property, and how comfortable they are working in a property flipping environment, often parallels the level of profit.
Should I consider realty rehabbing also known as flipping houses?
Flipping houses can be highly and consistently profitable. Here’s what needs to be considered before venturing into the world of realty rehabbing:
- How much capital is needed? – Realty rehabbing is not the most capital-intensive form of real estate investing, whereas new construction is by far more expensive. However, it may require some capital to make the initial purchase. Fortunately, there is a large amount of opportunity in Houston, and with some depressed home values, even a modest amount of capital can be enough to get started. Keep in mind that when rejuvenating a property, that capital will be tied up, so if it must be used for essential expenses, do not commit it to the project. Only use funds that are intended for investment purposes.
- Extensive knowledge of how real estate works – If the capital is there, the next hurdle into realty rehabbing is the knowledge barrier. Unlike wholesalers, renters or people who invest in real estate funds, realty rehabbers must know just about everything there is to know about real estate and construction.For example, the rehabber must have precise knowledge of the market they are operating in. They need to know how to purchase a property and the timelines involved, so they stay on time with their project. The rehabber must remain in compliance with all state regulations regarding real estate transactions as well. The rehabber must also have a clear picture of how to repair and upgrade the purchased property, as well as understanding the math involved to ensure they don’t go over budget. Finally, a successful rehabber is one that knows how to produce visibility for their property and market it appropriately.
That’s a lot to process, and the more the rehabber knows, the better off they will be. Should there be any gaps in knowledge, building a team of contractors and vendors who specialize in rehabbing a house may see some of the initial profits diminish, but over time, rehabbers learn how to function without the safety net.
- The ability to manage a team of people – Nearly every form of real estate investing, with investing in real estate funds the only notable exception, requires some ability to manage people. Because it involves physical property changing hands between parties, if a rehabber wants to manage the entire transaction from start to finish, they will have to be comfortable with negotiations.If a rehabber is only interested in the nuts and bolts of restoring a property, then they can always hire people to manage those parts of the job. In fact, a rehabber doesn’t ever have to get their hands dirty if they don’t want, as they can hire people to estimate the cost of rehabbing the property and have a crew perform the needed tasks. Again, the more people the rehabber needs to bring in to complete the job, the more it will cost, so the smaller the profit may be. It’s rare for a rehabber to oversee every single part of the process, but over time the learning curve will diminish. knowing who you can trust is a major advantage, and this will come over time.
- Hustle, hustle, hustle – Real estate markets are inefficient. In other words, there are opportunities lying in wait for those that know how to find them. But an unoptimized market also poses risks to the rehabber. Purchasing the wrong property, like a property with costly hidden issues, can result in a significant loss.However, the flip side is that there are properties out there that are undervalued, just waiting for an investor to find it and show its full potential. These properties are often found by wholesalers, as finding rehab opportunities is the wholesaler’s priority. But there’s nothing that prevents a realty rehabber from finding these properties on their own. Doing so would cut out a potential middleman and preserve more profit.
But if a rehabber is going to sift out those quality investment opportunities, they must be willing to look for them. Go on neighborhood excursions, look through homeowner directories and court some contacts with real estate agents. Get out there and do some leg work and you may find a rehab opportunity before other flippers and wholesalers do.
Flipping houses is an involved but rewarding process. And it’s rewarding in more ways than one, as it can provide a financial boost in addition to a physical and creative outlet. Even better, realty rehabbing is something everyone can conceivably do, as long as they have valuable resources and knowledge of the field.