House flipping: investments in apartments for renovation and subsequent resale with a 20% margin

House flipping: investments in apartments for renovation and subsequent resale with a 20% margin

The term “house flipping” came to the international real estate market directly from the United States. It refers to the practice of purchasing real estate for the sole purpose of reselling it for a higher price after a preliminary renovation. So it’s not just about exploiting the market’s fluctuations, but also about adding real value to a current facility.

Although all types of real estate can be referred to by this term, the residential sector is where it has gained the most popularity. This is especially true for the Spanish housing market. However, even before getting this term, this practice has been pretty common in Spain since the 1960s.

But this practise has only just started to gain popularity. A lot has been said about this on TV, investors talk about it, courses are created about it, it is described in the news and in articles, and celebrities also talk about it. Leonardo DiCaprio took part in real estate flipping by reselling his mansion in Malibu, and Diana Keaton even became an expert in the field of interior decoration and published a book about it.

The high demand for real estate attracts a significant number of investors and, at the same time, drives them to seek out ever-new strategies for profiting from a popular asset. Flipping is especially popular in large Spanish cities like Madrid, where there is not only a lot of demand and seller competition but also a huge out-of-date housing stock. Even a minor renovation will add a significant amount of value to this type of resale property.

The main principles of flipping are the competent choice of the moment for buying, the low price of this purchase, and confident forecasts for the price growth in the future. Market fluctuations that increase the property value “as is” are combined with the value-added repairs and home improvements. This allows the unit to be sold at a bargain price at its highest level.

Many investors take it a step further and purchase properties that are in poor condition or that are being sold by sellers who are eager to complete the transaction and willing to make concessions at extremely low, below-market prices. However, “rapid resale” still implies months of downtime for the unit. It is frequently compensated by short-term rental of the property to cover maintenance costs.

However, experts advise against betting your future on residential rental properties that offer revenue that is less than 20% of the potential sale price. Such earnings will simply not cover all of the costs of the facility’s active operation and solutions to unforeseen difficulties.

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