Microflipping: What It Is And How It Works
Real estate investors with an attention to detail and the ability to work with real estate technology can capitalize on the latest real estate investment 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.
What Is Microflipping?
Microflipping real estate is the digital form of wholesaling real estate. It’s a fast and efficient way to buy and sell real estate 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.
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 homes that need little to no renovations. They buy the home and sell it as fast as possible, turning a small profit. Microflipping companies usually complete the entire transaction, including buying and selling the home in as little as a few days, and are a fierce competitor in the real estate investment sector.
Microflipping Vs. Wholesaling
Microflipping real estate is like wholesaling, but on a smaller scale. Traditional wholesaling requires a lot more work and money.
Wholesale investors look for homes that need a lot of renovations. They typically buy foreclosed and/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 the effort it takes to find the right deal in an area liked by renters and buyers.
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 wholesalers may have a home for several months.
Like any investment, there is more reward with greater risk. In this case, wholesaling provides the greater reward (with the higher risk). Wholesalers invest money to fix up the home and then have the holding costs 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 Microflipping Works
Microflipping is like many other real estate purchase/sale transactions with a few differences.
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 sort out 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 sales 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 a part of the equation. This lowers profits and, with the below-profit margin involved in microflipping, it doesn’t make sense to hold onto 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
- 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.
- It’s not tied to a specific location – Investors can live anywhere and buy/sell homes across the country because it’s mostly an online process.
- Low startup costs – Investors need financing to buy the home, but most don’t need a large down payment and there’s no money needed for extensive repairs.
- 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.
- 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.
Is Microflipping 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.
How Long It Takes
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 determines 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.
How Much You'll Make
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% 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 real 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. Make sure it’s a desirable area where you can ask enough for the homes and make a profit.