Microflipping is the latest trend in real estate investment. Popular amongst investors who tend to buy pristine properties and quickly sell them to gain profits. Microflipping is primarily dependent on technology (software) and most of the flips happen using it.
Since traditional house flipping is facing a decline in home flipping sales and profit margins, microflipping has emerged as an alternative for investors to gain profits in a more convenient way.
Let’s have a deeper look at what exactly microflipping is; How microflipping works? How does it differ from traditional wholesaling? The pros and cons of microflipping, technical requirements, and a whole lot more.
What is Microflipping in Real Estate?
How about flipping a property without the hassle of repairing it? That is just what ‘microflipping’ is. If you are a real estate investor, you probably would have come across the term ‘microflipping’.
The micro in microflipping denotes the speed of the process, the risk level, the efforts you’ll have to put, and the potential profit margin.
How Microflipping Works?
Most microflippers target undervalued properties since there is a very low-profit margin. Generally, you should bid for a property that is in good condition and requires fewer repairs.
This also means that you’ll have to pay a bigger price to purchase a property, which is when taking a hard money loan makes sense to raise capital in a short time. Investors can opt from various microflipping software available in the market to track, analyze, and estimate potential house flips.
Finding / Pitching buyers
When microflipping, investors have a buyer lined up before even purchasing a property. This reduces the amount of time to flip a real estate. That way you don’t have to bear the carrying costs as you already have a buyer set up for it.
Negotiating with sellers
Microflipping has little room for profits, so an investor must be able to negotiate with a seller to obtain the lowest sales price. You may have to put more effort into negotiations than usual while microflipping. Microflippers should be skilled enough to target motivated sellers who are willing to mold as per their terms.
What Should You Consider While Microflipping?
Microflipping is a kind of real estate investment where you look for a property, purchase it, and sell it online. It involves the effective use of technology and data for finding lucrative real estate investment opportunities.
Microflipping is the new-age form of wholesaling real estate, but quicker and more efficient than traditional wholesaling. Most of the microflippers close their deals in a week or so. Though some cosmetic changes may take place, it doesn’t involve major renovations. An investor doesn’t need a large investment for microflipping. The only thing an investor should consider is the competitors, most specifically the ‘iBuyers’.
Understanding the need of the hour, real estate companies like Opendoor, Zillow, Offerpad, and Knock started buying and selling properties online through simplified technology that offers a lot of features for investors. Companies like these have become market leaders and are commonly known as ‘iBuyers’.
iBuyers primarily target undervalued properties with no or less need for repair work. These types of companies have been formed to eliminate the role of a real estate agent by acquiring properties straight from a homeowner and selling it directly to a home buyer.
With a simplified process and advanced technology, iBuyers give tough competition to private real estate investors.
What is the Difference Between Microflipping and Wholesaling?
Wholesaling involves purchasing a distressed property, fixing it, and selling it for a larger margin of profit. Whereas microflipping cuts to the chase and deals with homes that are in good condition or require minimal repairs to quickly sell them and gain profits.
Wholesaling is a long process, hunting potential properties, fixing them, and selling them takes a lot of labor work. Microflipping is primarily done online and requires technical knowledge, most of the deals take less than a week to close.
The risk involved in wholesaling is greater than compared to microflipping. It requires an investor to bear the repair costs and wait to sell. Microflippers don’t have to face the risk as they sell homes in less time.
Pros of Microflipping in Real estate
1. Faster process
The process is simplified and includes less repair work. Investors can buy and sell the property online without having to worry about the renovations, this makes microflipping a faster way to generate profits.
2. Remote work
You don’t have to physically go anywhere to do microflipping. Investors can buy and sell real estate properties from the comfort of their homes.
3. Low investment
The only major investment in microflipping is the finance to buy a property. As there are no repair costs involved, it takes very little money to start a microflipping project.
4. Quick profit
Microflipping allows an investor to gain ‘quick’ profits from a flip rather than waiting and holding property like traditional house flipping. You don’t have to wait longer to gain profits as most of the homes can be flipped within some days or a week while microflipping.
Cons of Microflipping in Real Estate
1. Requires Technical Knowledge
Microflipping is primarily based on technology and requires investors to have a keen knowledge of the microflipping software. Without the software setup and the knowledge, it is hard to figure out microflipping.
2. High Competition
Large real estate companies like iBuyers with deep pockets and technical support rule the microflipping world. That makes it hard for an individual investor to compete against these biggies with limited resources.
3. Small Profit Margin
The profit margin is very low in microflipping as compared to traditional house flipping. Microflippers generally make an average profit of somewhere around $5000 to $10000 on every flip.
What are the Microflipping Essentials?
1. Choosing the right equipment
Microflipping is an amalgamation of technology and real estate. An investor can opt from multiple software’s exclusively made for house flipping. Most of the software enables an investor to easily track properties, analyze the ‘comps’, and manage the flips. Make sure that the software you choose provides the following features essential for microflipping.
- Daily updates and information on buyers and sellers in the locations you are interested in.
- Filters to sort out undervalued properties and motivated sellers.
- Authentic and valid information of buyer and seller
- Device compatibility to access information from mobile devices
- Access to nationwide MSL records to determine active, pending, or failed listings
- Precise Information about the comparables (comps)
Another essential thing for microflipping is the ability of an investor to build their network. An investor must maintain a relationship with sellers as well as buyers. Microflipping is a short-term real estate investment, thus needs an investor to look for a potential buyer before they even purchase a property. This allows you to avoid the carrying costs of the property.
3. Excellent Salesmanship Skills
Whether you tend to buy or sell a property, you’ll have to apply all your salesmanship skills. Finding the right properties, especially undervalued ones, is a skill that every investor should acquire. Another helpful skill is the ability to negotiate with a seller which will allow you to purchase a property at the lowest sale price. Analyzing the comparables (comps), effective use of MSL data, etc. are also some of the skills that can be gradually adopted.
4. Financial Planning
Financial planning is a crucial part of microflipping. Considering the fact that an investor would be interested in buying a property that is in immaculate condition, the price tag on those properties would be on the higher side. The primary way to purchase property could be in cash, but that isn’t possible for every investor.
In that case, the best way to finance a property would be hard money loans from private lenders. Hard money loans can be easily obtained and the approval period is much faster than other sources. It is the convenience and ease of process that makes hard money loans a highly preferred way to raise capital for real estate investment.
The Bottom Line
Microflipping is a smart way to invest in real estate but provides a little margin for profit. This is a better option for technically sound investors.
Microflipping is primarily done on properties that are in good shape or condition which requires a great amount to be paid upfront for purchasing one. In this case, experts like 14th Street Capital can guide you through fast and convenient financing options for your microflipping projects. Our hard money loans are strategically designed to bring speed and transparency to real estate financing.