Why do real estate investors flip properties to other investors? How does this investment strategy stack up to the alternatives?
Many real estate investors focus on flipping properties to other investors. For some, it is their main investment strategy. However, there are many that still don’t understand why they choose this strategy. Why do some prefer this investment model? Should you be doing the same, or not?
Flipping Houses vs. Buy and Hold
There is a huge demand for buy and hold income producing rental properties. Everyone can benefit from passive income producing real estate assets in their portfolio, but not everyone finds that it is the best fit for them or their goals. Flipping houses can produce large lump sums of cash while reducing risk and management. Get in, out, and paid. Some investors find this to the best fit for their skill set and personality, and someone needs to do it. It can also be less expensive and time consuming to flip houses versus rehabbing and renting them out.
Why Flip Houses to other Real Estate Investors?
So why choose to flip houses to other investors instead of retail homebuyers? The most obvious answer is volume. Regular home buyers looking for a property to live in may only buy a property every five to ten years, versus a single investor client that may buy ten or more properties each month. That not only helps those flipping houses to move more properties and increase top line revenues, but also bottom line profit. It’s simply most cost effective to find and secure volume clients. Selling to other investors also means having a buyer that gets the investment plan and how investors work. This can save a lot of headache and keeps transactions streamlined. It’s also worth noting that some regular home buyers can have a hard time obtaining financing. If it is almost exclusively a rental neighborhood, flipping to buy and hold investors can be the best bet. The opposite can also be true.
Why Offer Turnkey Rentals?
Some have posed that there is ongoing profit to be made from property management. In reality, while property management can be an extra income stream, it has one of the skinniest profit margins in real estate. Offering financing or partial financing might be more profitable for ongoing income streams. Turnkey does offer ease of access to passive income investors, however. It opens access to more investors, provides for higher volumes of deal flow, and helps ensure deals are profitable.
Why Flip Houses to Retail Buyers?
Flipping houses to regular retail buyers can be slower, more time consuming and expensive. However, it can facilitate reselling properties for top dollar, versus offering the substantial discounts that are needed to offer value and profit for other investors. Investors can even offer seller financing to move units faster while creating ongoing income streams, without the holding costs and risks of rentals. The paper assets created can then be sold as needed. However, there is a much more significant reason for this strategy that goes beyond profit: helping individuals and families to secure affordable, safe and quality housing. Recycling homes in this way helps neighborhoods, communities and the economy too.
How to Improve Deal Volume When Flipping Houses to Regular Buyers
How can real estate investors get the best of both worlds and flip to retail buyers in higher volumes? Get great at list building. Get great at generating high volumes of buyer leads and you can have a sizable waiting list. This can be done via online real estate marketing, and by generating referrals.
Summary
There are many reasons for real estate investors to both flip houses to other investors and to retail buyers. However, there is no reason that investors can’t expand into doing both once they have mastered the other. So which way will you go?
