The world of real estate investment offers a lot of opportunities and options an aspiring investor can venture into. If you are looking for a suitable habitat for you and your family, you can purchase a house & lot, a townhouse, or a condominium unit. On the other hand, if you are seeing real estate investment as an avenue to increase money and gain financial stability, you can invest into rental properties for a steady flow of cash in the form of passive income. If you are the type to take risks, you can try playing in the market of REITs. But aside from these options, there’s another investment strategy that’s been popular to many investors for its great returns and profit.
Also known as wholesale real estate investing, house flipping– or shortly, flipping, is when an investor purchases a property or a house, taking advantage on its low price, apply some cosmetic renovations and improvements which enhances its property values and sell it again for a quick profit.
Single family homes are the most staple when it comes to flipping houses, but your option isn’t only limited to these kind of investment properties. Recently, real estate investors are flocking into condo flipping due to its various perks.
While house flipping and condo flipping may sound similar, there are distinct features that differentiates the two. While both may involve purchasing, upgrading, and reselling a property, there are some factors (that investors like you should know and consider) like condo association rules and costs that sets aside one from another.
Is Flipping a Condo a Good Real Estate Investment?
If you are a budding real estate investor, condo flipping is the suitable option for you to familiarize yourself in the real estate investment market. Here’s a handy tip: prioritize or target pre-selling condos as they are comparatively low in price since they are still in the planning stages or in the process of completion. By the time the project has finished, your property has significantly gained value and you can now resell it at a higher price. This investment strategy is referred to as ‘Buy Low, Sell High.’
Another good thing about condo flipping is that it doesn’t require a large capital. All you have to do is pay the down payment which usually has zero interest rate and is divided into terms payable within years which makes it light in the pockets. Here are some advantages which makes flipping condos an excellent option for investment.
Less Competition from Other Flippers
There are lesser number of real estate investors who flip condos compared to house flipping. This means that there are fewer competitors in the market for those who want to profit in this type of investment. Another advantage of condo flipping is when the supply of available condominiums doesn’t meet the surging demand for units, you can sell your pre-purchased condo investment at a very reasonable, or possibly higher price to potential buyers.
Less Competition from Other Landlords
Some condo associations prefer not to put up their units for rent. This is another advantage on the part of condo flipping as you can cross out rental property investors on your list of competitors.
Condominiums are more affordable than detached single family homes as they don’t have any backyard or patio and is comparatively smaller in square footage. They are the suitable option for those who are looking for cheaper investments. Even if you do have the money and capital, covering the costs of potential mistakes you might commit the process will be less expensive.
Fewer renovation costs
Owning a condo unit has cheaper renovation costs as you only occupy and maintain the space inside the four corner of your walls. Condominiums don’t have a backyard or a patio to clean and usually, condo owners aren’t the one whose in charge with the repair and maintenance of the building structure, foundation, roof and other central mechanicals such as HVAC (heating, ventilation, air conditioning), water heaters, and such.
With that you can solely focus your energy and attention into the cosmetic upgrades and interior design enhancements of your space.
Some condo flipping projects are funded by hard money loans. Meaning, condo flippers can sustain their business through residential loans options (like mortgage or home loans) since condos are also considered as a residential real estate.
Factors to Consider When Condo Flipping
Now that you’ve known the basics and advantages of condo flipping, it’s time for you to know the factors to consider to prevent your condo flipping business from flopping.
Cash Flow and Savings
Before you dive into the world of condo flipping, ensure that you have a steady flow of income to afford monthly amortization and other fees in the long run. Savings also play a vital role, serving as a financial cushion in case you lose your source of income and money. Think about the potential financial mishaps and shortcomings that might come along the way and devise a plan on how you can assess them so you won’t lose your investment properties. Also, ensure that you pay your monthly amortization on time to avoid paying additional costs and interests which may hurt your budget.
Aside from amortization and fees, you also need to allot some cash for the renovation costs and improvements. You can hire an interior designer to assist you in revamping your niche.
Choosing the best and strategic location of your condominium will greatly affect its appreciation value at the date of its turnover. Invest in condos located in highly-urbanized cities and areas as they tend to yield higher appreciation values due to their close proximity to business center, schools, and commercial districts.
Finding the Right Buyer
Now that your condo is nearing in completion and has appreciated significantly after a few years, it’s time to find the right buyer and offer the right price. It is advisable to start looking for a buyer a year and a half before the completion of the project. Consult your real estate agent about the current list price of the developer for your unit and so you’ll have the right benchmark when formulating your selling price.
Another thing to consider is the real estate agent’s commitment to the developer. Is your agent still employed in the company at the time of turnover? When the time comes that you are ready to put your property or unit up for sale, your real estate agent could lend you a helping hand in finding potential buyers and in processing necessary documents, especially if you are working abroad.
Transfer fee is the amount charged by condominium owners or association when a unit is sold and transferred. You may deduct this amount on the actual price of your profit as flippers are the ones who usually shoulders this fee.
Renovation Restrictions and Approval Requirements
Before you go and unleash that creativity in renovating your condo unit, make sure to speak up with the condo association if they have any rules and restrictions in regards to upgrades and improvements. Some associations are rather open to renovations while some may be a bit skeptical towards it.
Now that you have it, should you start condo flipping now?
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