How long should it really take to flip a property for a profit?
The time it takes to flip a property – between buying and reselling – can make a big difference in the profits. New real estate investors often get into this type of investment for the promise of quick flips, and quick earnings. Yet, a May 2015 headline from Bloomberg Business proclaims “It’s Only Taking a Few Years to Flip a NYC Condo for Huge Profits.”
How Long Does it Take to Sell a Home?
There are a number of factors that influence the time it takes to sell any individual house or condo. However, those real estate investors that are new to any market can gain instant insight from looking at local Realtor statistics, and average days on market provided by real estate appraisers. Six months is considered a healthy market. Many U.S. markets have been saying they are in far more than good condition, with just weeks or a few months of inventory. San Francisco Gate (SFgate) says the average goal of a rehabbing investor is 90 days turnaround time. In 2013, RealtyTrac reported the average time from purchase to resale was 106 days. However, there are other indicators too. The MLS, online public records, and driving local neighborhoods can provide a lot of insight into how fast properties are being flipped and sold. Digging into these figures is likely to show that many properties are being flipped in 1-3 days. Many homes are attracting multiple bids, and are being sold within hours of being put up for sale.
So Why the Disparity in House Flipping Timelines?
So why do the news headlines suggest it takes just hours to sell a property in some parts of Southern California, a day or two in South Florida, and three years in NYC?
First of all, it is important to point out that these are all just examples of some of the transactions in these markets. A lot has to do with the individual investor’s real estate investing strategy. Buying a condo and just sitting on it before re-listing a couple years later isn’t considered ‘flipping’ by most standards. The same goes for those building houses on spec or purchasing pre-construction to flip a few years down the road.
There are also those that wholesale real estate in just a few days. When investors wholesale real estate contracts, or sandwich lease option them, these transactions may not even be identifiable in public record.
Then there are those that are engaging in actually fixing up and flipping houses. A significant part of the timeline for these real estate investors is how long it takes to rehab a property. Many won’t even consider marketing a home or condo for sale until they are 100% done with improvements. Some turn around cosmetic improvements in a couple of days. Others take many months.
Why Does Timeline Matter So Much?
Besides the fact that you don’t get paid or realize any profit until a property is resold, there are other reasons time matters. In fact, time often trumps the percentage return on an individual unit. For example; it may be far better to flip a house for a 20% profit in 30 days, than a 34% profit in 365 days. Flips that can be done with the same cash or credit per year. Obviously it should be more profitable to flip 12 $500,000 condos (one each 30 days) for a 25% profit margin, than one for a 34% margin.
The second reason is lower risk. Every day a property is held, it brings a variety of risks. Risks of lawsuits, depreciation, and damage. Even if you have the holding cash and tolerance for risk; are you maximizing returns? For yourself, and any of your lenders, and partners?
So how can real estate investors speed up flipping?
Strategy, Tactics, and Alternatives
Wholesaling can dramatically cut down the timeline on turning around deals. Savvy wholesalers even have buyers lined up before they contract to buy a property.
Prehabbing is a hybrid solution that falls in between wholesaling and rehabbing. It is basically clearing the slate for the next buyer or investor. This can be cleaning up, gutting, or even tearing down a property.
Some might choose to start marketing deals for sale a lot earlier. As if you aren’t listing and promoting it, it is far likely to attract bids. Do you really need to wait until it is all polished, cleaned, and staged?
How about simply speeding up the rehab process with better teams and coordination of sub-contractors? Making sure a property is priced right, and is even put on the market at the right time and day can make a big difference too.