Real estate investors with an attention to detail and the ability to work with technology can capitalize on the latest money-making trend: microflipping. With little capital and plenty of motivation, real estate investors can flip properties within a matter of days, pocketing a profit without any sweat equity or extensive work involved.
Let’s take a look at what mircoflipping is, how it works and who should consider real estate investing with this type of strategy.
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What Is Microflipping?
Microflipping real estate is the short-term, digital form of wholesaling real estate. It’s a fast and efficient way to buy and sell property based on data found online. It doesn’t involve major renovations or large financial investments (outside of buying the property).
The “micro” part gets its name from the speed at which investors buy and sell the property. You don’t hold onto the property for long. In fact, most investors have a buyer lined up before they even close on the sale of the home.
Microflipping is an investment strategy that leverages technology and readily available data to find, buy and quickly sell undervalued properties. Microflipping real estate rarely, if ever, involves renovations or cosmetic changes. |
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iBuyers
The largest sectors of microflipping are iBuyers or large companies that buy undervalued properties and sell them almost instantly. Think of companies like Zillow and RedFin.
iBuyers purchase multiple homes that need little to no renovations. They buy houses and sell them as fast as possible, turning a small profit. Microflipping companies may complete the entire transaction online without the use of a real estate agent, buying and selling the home in as little as a few days, and are fierce competitors in the real estate investment industry.
But keep in mind, buying up multiple houses at a time isn’t a strategy usually used by individual microflippers that operate with a smaller budget.
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Microflipping Vs. Wholesaling
Microflipping real estate is like wholesaling, but on a smaller scale. Traditional real estate wholesaling requires more time and money as it’s done with a higher volume of properties.
To wholesale real estate, an investor will visit a property listed under market value and make an offer. Once the property is under contract, the wholesaler will look for a buyer who is willing to purchase the property for more money than the wholesaler is paying. In other words, wholesalers act as middlemen between sellers and other buyers or investors.
Wholesalers typically use this business model to buy several distressed properties at a time and then sell the homes to interested house flippers over a span of months. In comparison, microflipping is usually done with a smaller number of properties and the transaction can happen entirely online.
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Microflipping Vs. House Flipping
Another investment strategy that is similar to microflipping is house flipping, but there is a key difference between the two.
House flippers look for homes that need a lot of renovations. They typically buy foreclosed or abandoned homes, fix them up and sell them for much more than they acquired them. The process is very labor-intensive not only because of the work involved to fix up the home, but also because of the effort it takes to find the right deal in an area liked by renters and buyers.
On the other hand, microflippers don’t fix up homes. Instead, they use technology to find undervalued homes in good condition. Microflippers like to buy and sell homes within a week or two, whereas flippers may have a home for several months.
Like any investment, there is more reward with greater risk. In this case, flipping real estate can provide greater financial reward (although with higher risk). House flippers invest money to fix up the home and will also have holdingcosts (think their mortgage or property taxes) as they wait for it to sell. Microflippers have much less risk as they usually sell homes almost instantly but receive a smaller reward.
How Does Microflipping Work?
Microflipping is like many other real estate purchase transactions but with a few differences.
Finding Properties
Finding properties starts the process, but not any property will do. Microflippers need properties that are underpriced since there’s such a low profit margin when microflipping. Investors can choose from a large variety of software programs, but make sure the one you select has at least some of the following:
- Real-time updates on the homes available for sale
- Filters that highlight undervalued homes and/or owners who need to sell fast
- Valid contact information for sellers to get in touch with them quickly
- Mobile access so you can check out properties anytime
- User-friendly records access, so you can assess a property quickly, making swift investment decisions
Negotiating With Sellers
Finding a property is just the start. Next, investors must negotiate with sellers. Because they are trying to make a profit, they want the lowest sale price possible. The negotiations may take a little more work (and salesmanship) than a traditional sales negotiation.
Typically, microflippers work with motivated sellers. Whether they’re trying to avoid foreclosure or need to move fast for personal reasons, sellers may be motivated enough to wheel and deal the way microflippers need.
Pitching To Buyers
Before investors buy a property, they usually have a buyer lined up. It’s the only way to ensure a fast deal. Without having buyers lined up, investors have carrying costs, which aren’t typically a part of microflipping. Carrying costs will lower profits and, with the below-profit margin involved in microflipping, it doesn’t make sense to hold onto these properties.
Investors need to resell the property at a profit, which means using swift sales techniques that convince buyers to purchase the home.
Pros And Cons Of Microflipping
If you think microflipping might be the right investment strategy for you, there are several pros and cons to consider.
Pros
Microflippers can enjoy the following benefits:
- Fast turnaround: Investors have possession of the property for only a few days to a few weeks, if they do it right.
- Hands-off process: Investors don’t have to worry about fixing up the home. They act as the middleman, buying and selling the home quickly.
- Not location specific: Investors can live anywhere and buy/sell homes across the country because it’s mostly an online process.
- Low startup costs: Investors may need financing to buy the home, but most don’t need a large down payment and there’s no money needed for extensive repairs.
Cons
Unfortunately, microflipping properties can also come with these drawbacks:
- Requires tech competency: Investors must work with microflipping software, which requires a bit of technological knowledge to work the system quickly.
- A lot of competition: With its low startup costs, many individual investors use microflipping, plus the large number of iBuyers like Zillow and RedFin can make competition tough.
- Smaller profit margins: Microflippers don’t make a huge profit. Their goal is to turn the sale around fast (in a matter of days), so they make much less than wholesalers or house flippers.
- Not entirely passive: Since investors need to do research and find buyers themselves, microflipping doesn’t provide a fully passive income, whereas renting out a home may require less work.
Is Microflipping Right For You?
Wholesale investors sometimes have to wait 6 months to a year for their profits, whereas microflippers see profits within a couple of weeks. This enables microflippers to turn around and do it again, buying and selling multiple properties within the time it would take to buy and sell one wholesale real estate property.
If you like fast profits and quick turnaround times, microflipping may be the ideal real estate investment strategy for you. However, to see a healthy return on investment, you’ll need to learn this strategy quickly and be prepared for a smaller profit margin.
You’re A Quick Learner
Microflipping itself can be done in a matter of a week or so, but – from start to finish – investors have a much longer timeline. The time it takes depends on how well you research and learn.
Your efficiency with the software and your reaction time to market opportunities determine how quickly you can buy and sell properties. Ideally, investors should have buyers lined up before they buy a property themselves, so they can quickly turn around and sell it within a matter of days.
If you think you’ll struggle to learn how to use mircoflipping software, this type of real estate investment might not be for you.
You’re Okay With Smaller Profits
Microflipping won’t turn $100,000 profits like many wholesale investors make per property. Instead, investors make $5,000 – $10,000 per flip. While that doesn’t sound like much, if you microflip often, the profits add up quickly.
Like all real estate transactions, there are expenses. As the buyer, you’ll pay the closing costs (usually around 3% – 6% of the loan amount). You may pay closing costs when you sell the property too, so keep that in mind as you look at your profit margins.
The Bottom Line
Microflipping is a great way for anyone who’s interested in real estate investments to get started. You don’t need a lot of capital, and you can earn profits quickly. The key factor, however, is using the microflipping software. Without software, it’s impossible to microflip quickly and effectively.
As is the case with any real estate investment, always do your due diligence. Do your research and get to know the area.
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Victoria Araj
Victoria Araj is a Staff Writer for Rocket Companies who has held roles in mortgage banking, public relations and more in her 15-plus years of experience. She has a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.
