What are the pros and cons of micro flipping?
Like any other type of investing, there are pros and cons to being a micro flipper. Read over the various advantages and disadvantages to get a better sense of whether micro flipping might be the right choice for your next investment venture.
The major advantage of micro flipping is that, compared to other investing strategies, it's a relatively passive form of investment. While you must work to find undervalued properties with motivated sellers and interested buyers to sell them to, that work can mostly be done from behind a computer. And there's very little sweat equity to be poured into the home. In some cases, micro flipping can be a little more than contract flipping, where you don't do any work to the home at all.
The other advantage is the speed at which it can all happen, especially compared to traditional wholesaling. Here, there's no driving around looking for properties that can be bought for below-market value, no knocking on doors, and no cold calling. Instead, it's all about analyzing data sets to find motivated sellers who might be willing to make a move. Once you get the hang of the technology, it can be achieved in very little time at all.
The major downside of micro flipping is its stiff competition. Your main competition for properties here won't be individual investors. Instead, you'll be up against micro flipping's biggest players, iBuyers like Zillow (NASDAQ: Z), Redfin (NASDAQ: RDFN), and Opendoor (OTC: OPNDF).
These companies are at a major advantage over individuals because their main business model is based on the exact data sets you need to use to be a successful micro flipper. They also already have an existing stable of sellers and buyers from which to funnel leads.
However, the other major disadvantage might be the profit margin. Again, this is a low-margin, high-volume investing strategy. You won't make as much per transaction as with other forms of real estate investing. If you're not interested in being a real estate investor who does a ton of transactions every year, it may be worth looking into other ways to diversify your portfolio.
How to get started micro flipping
If you still think that micro flipping might be right for you, here are a few tips on how to get you started and will give you a good foundational knowledge of what successful micro flipping takes.
Network, network, network
To be a wholesaler, you need to be able to network. While you might think the first step to micro flipping is to find properties you can purchase for below-market value, it's really the other way around. It will serve you much better if you can find a potential buyer before you even find the property. In that case, you won't have to worry about managing your carrying costs. You may even be able to use transactional funding to buy and sell the property the very same day.
Invest in the right equipment
Once you've started working on growing a stable of interested buyers, the next step is to find undervalued properties to buy. For that, you need access to market data. While it's possible to comb through public records data and an MLS to find them yourself, plenty of programs will help you identify distressed properties.
You'll have to do your research in order to find which one works best for you. However, if you're interested in going this route, one of those programs will likely be a worthwhile investment
Decide on your financing strategy and build your real estate team
Lastly, it's important to put the financing piece in place. Most people who follow a real estate wholesaling investment strategy use either transactional funding or a hard money loan to fund their purchases. There are pluses and minuses to each, so think carefully before deciding which financing path you'd like to take.
After you know your financing strategy, connect with a local lender who works with your choice of funding. Ideally, it should be someone experienced with wholesaling. Additionally, if you don't have your own real estate license, you can also hire a real estate agent who can help you with contracts.
The bottom line
Although "micro flipping" might be the new term for it, wholesaling has been around for a long time. If you're thinking of using wholesaling as a way to make money, use this guide and some of our other resources to help you get started. Armed with the right knowledge, you'll have a better idea of whether micro flipping could be the right investment strategy for you.