Flipping properties has always been a popular method for investing in real estate. It offers investors the opportunity to take a hands-on approach and use their own creative vision, while also potentially making a profit. Yet, flipping properties can be an intimidating prospect during a market downturn. Ultimately, if an investor buys and fixes a property, and then isn’t able to sell it, they’ve spent a lot of money and made no return on their investment.
That being said it can be possible to keep flipping houses and making a profit even in a market downturn. If you’re intending to flip homes during a downtime, it’s useful to have some knowledge about buyer behavior as well as how to make properties appealing when the market isn’t thriving. So, we’ve compiled some tips to keep in mind to help investors mitigate risk in their real estate investing deals.
Seek out properties that are cheaper than your normal investment
Search for properties that are more affordable than what you would typically purchase. Restrict your budget as much as you reasonably can. If you spend less than you usually would to buy a property and are able to do renovations at a similar cost, you could sell the property for less than you would normally list for and still make a profit. Listing homes at a lower price during a downturn will inevitably encourage buyers to make offers and that also means you could be getting a great deal on your next property.
Foreclosures are a suitable path to success
Whenever there’s a market downturn, it’s likely that there will be an increase in the number of properties that have gone through foreclosure and are now owned by banks. In most cases, banks don’t want to own houses, they want to own the rights to promissory notes and mortgages. So, one path to find an extremely affordable house to flip during a market downturn is to target bank-owned homes. These properties can often be in decent shape since they’ve been maintained by a recent owner or the bank and they’re often eager to sell and likely for a cheap price. Purchasing a bank-owned property helps you invest less in the property expense, which ultimately increases your chances of making a solid profit.
Long term approach: buy and hold
During a market downturn, some real estate investors opt to take the long-term buy and hold approach as their main strategy. In this situation, they buy real estate and lease it out to maintain a steady cash flow. The tenants pay down the mortgage principal while the property increases in value, and when the investor is ready to sell, they can often cash out large amount of equity that’s built up over the years. Beyond that, the property offers some tax write-offs.
Ideally, flippers don’t take the buy and hold approach, but when a market is declining and you can’t immediately sell a property for a profit, buying and holding can help you ride out the slump. Obviously, if you’re not landlord material, this strategy isn’t right for you, but if you can ride out the market on someone else’s dime, it’s a worthwhile strategy.
Remember: patience is key
Naturally, property flippers are often the types of investors who want to see an ROI nearly immediately. However, if a market is in a downturn, the best thing a house flipper can do is be patient. It may take longer to sell the property so it may be beneficial to make the renovations more slowly than you normally would or to take on some of the work yourself when possible. If you can be patient long enough for the market to change, you may be able to see a profit from the sale of the property, just not as quickly as you’re used to.
RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Connect with us today to discuss your next fix & flip investment.