As an investor or potential real estate investor, you have probably heard the term “micro flipping” around and are wondering what it means. Well, it’s a new trend that seems to be taking over the real estate industry.
Despite the name, micro flipping barely requires any “flipping” and it is a pretty effective strategy for investing in real estate. It can even be a faster way to make money with real estate than the traditional house flipping you have in mind.
So what exactly is micro flipping? What does this strategy entail? What are the steps to starting micro flipping?
Keep reading, this article will provide the answers to these questions including the pros and cons of this strategy and tips on how to get started.
What is Micro Flipping?
Micro flipping is a modern twist to the well-known concept of wholesaling in real estate. It is a kind of short-term real estate investment that involves identifying properties that are undervalued and in need of renovation, buying them, and then selling them to buyers for a profit.
You will need to leverage technology and data sets to identify these buildings. You may not have to do any significant renovation or improvement on the property being purchased and resold.
What puts the “micro” in micro flipping is the time it takes to complete the transactions. Micro flipping transactions tend to happen very quickly.
Pros and Cons of Micro Flipping
Like several other real estate investment strategies, micro flipping also had its pros and cons. Below are some of the pros and cons to micro flipping:
Pros
The first pro of micro flipping is that it is a somewhat passive investment strategy. It is not entirely passive because you have to put in some work into finding these undervalued properties and getting buyers for them. But you can do most of this work using a computer.
Another advantage you stand to enjoy is the speed at which micro flipping transactions take place. This is especially when you compare it to traditional wholesaling.
With micro flipping, you do not have to drive around streets looking for properties, no cold calling, and no knocking on doors. All you have to do is analyze data sets and use the information to find undervalued properties and interested buyers.
Cons
The most significant downside to this strategy is the stiff competition. In most cases, your competition for undervalued properties may be corporate bodies, not just individual investors.
Another downside can be the profit margin. Micro flipping is a low-margin, high-volume investment strategy. You are not likely to have the same profit margin as other types of real estate investment.
How to Start Micro Flipping
If you want to learn how to get started with micro flipping, you are not alone. A lot of beginners in real estate investing are interested in jumping on this new trend. This is because of the benefits they stand to enjoy.
So how do you get started?
Network to Find Buyers
It is easy to think the step to take when getting into micro flipping is to find undervalued properties. While this may work, it is an ineffective way to get started with the micro flipping strategy.
The best way to get started is to find potential buyers even before finding the undervalued property you intend to sell. Doing it this way will benefit you greatly. First of all, there is no need for you to worry about managing any carrying costs. In some instances, you may even be able to sell the property the same day you buy it using transactional funding.
Doing this will ensure that, at all times, you have a sizable pool of interested buyers to use to your advantage.
Invest the Right Tools
The next thing to do, once you have started curating a list of interested potential buyers, is to find properties that are selling below their market value. To do this, you will need to research using a lot of market data.
You can do your research by scouring through available public data or even a multiple listing service. But these methods are stressful and are not time efficient. To beat this process, there are RentGrid and several programs that can easily help you identify distressed and undervalued properties.
These programs grant you access to records of several properties and let you filter through those records based on what you are searching for. The choice of which program to use is totally up to you. If you are interested in an easier and more effective option, investing in good software will be a very worthwhile decision.
Figure Out Financing
One of the most important factors you must put in place as a real estate investor, regardless of strategy, is financing. This is because you will be doing a lot of buying and selling within very short periods of time.
One option you have is to buy the properties and sell them in cash. This option may not be feasible for a lot of real estate investment beginners because they are not likely to have that amount of money lying around.
Another option is to get a hard loan. A hard loan is a loan provided by a private lender. The private lender gives the money to the borrower often with interest and short repayment periods. This is the more popular option among micro flippers.
Network with Experts
As a real estate investor, it is a brilliant idea for you to connect and network with real estate experts. These include lenders, realtors or real estate agents, and real estate attorneys. Getting in touch with these professionals will help point you in the right direction and make your start a lot easier.
Conclusion
Despite being a quick and convenient investment strategy, micro flipping is not for every investor. There are a lot of alternative real estate investment strategies. Do your research into these strategies to be sure micro flipping is the right investment strategy for you.