Flipping houses is a great way for beginning real estate investors to earn enough capital or garner enough collateral to make larger and potentially more profitable investments. Houses offer great opportunities for successful investments because they can be purchased without a lot of upfront capital and are relatively easy to obtain, they are in great demand in most real estate markets therefore they are easy to flip, and there is relatively little financial risk compared to larger, more involved real estate transactions. For these reasons many beginners in the investment field get their financial feet wet by buying and selling residential properties.
Thousands of residential properties changes owners every day; since these transactions are so common banks and other lending institutions offer certain financial short cuts in order to streamline the process. These shortcuts make purchasing a home much more affordable than other real estate properties. Since purchasing a home is more affordable (the average single family home costs two hundred thousand dollars) than other investments, an investor does not need a lot of upfront capital in order to complete the transaction. Most banks only require a ten percent down payment. This means that if a house costs one hundred thousand dollars, the purchaser only needs ten thousand dollars for the purchase. The remaining balance is fronted by the lending institution for a fee.
Many institutions will accept other assets in lieu of actual cash. For many investors this may be a better option. This means that instead of paying the initial down payment, the purchaser can declare a car, boat, or any other owned property that is valued at or above the initial down payment. Therefore, a home can be purchased without any cash on hand at all. There are even government programs that can help with the purchase of a home. While these are intended to benefit home buyers, real estate investors can also take advantage.
Flipping houses for profit is also a great way to generate capital for other investments because the demand for these properties is great in most real estate markets. When property sellers decide to sell their real estate assets the most important step is to locate and identify potential buyers. Since homes are in constant demand, there is a ready supply of buyers. Therefore, there is usually no need for a lengthy, costly, and time consuming process of searching for a buyer. Many times a house will sell itself. This means that simply placing the property on the market is usually enough to get the house sold.
Compared to other real estate investments which may run into the millions of dollars, residential investments is relatively low risk from a financial standpoint. If a house does not sell immediately, then the cost of maintaining ownership of that house is not overwhelming for most people; whereas the continued ownership of a larger commercial property might be too expensive to maintain. It is also less of risk because, as we have already discussed, the initial investment is comparatively small if not nonexistent.
Therefore, many beginning investors begin their career by flipping houses for profit. It is an easy and relatively low risk method of building capital and assets for larger and more profitable investments.