Starting a business is a dream that millions of people have. Making it happen is something else. One sad statistic is that about 90% of start-ups will fail at some point, with 10% going to the wall in the first year.
However, property investment has been shown to be a lucrative business model for many. In 2021, 323,465 houses were flipped. That represented a 26% increase from the previous year. This year has shown there is a great appetite for house buying and flipping also. In quarter one of 2022, 114,706 properties were flipped.
The average profit that is made from buying and fixing up a home is around $60,000, and the time it takes usually is about 6 months. Many house buyers will have multiple properties in their portfolios at any one time.
But, as simple as this sounds, there are many aspects to building a successful house-buying business.
- 1 Is It Viable To Start A House-buying Business In 2022?
- 2 What Are The Aspects Of A House-buying Business?
- 3 Market Analysis
- 4 Build A Network & Team
- 5 Financing Your Business
- 6 Grow Leads And Increase Traffic
- 7 Licensing, Permits, And Insurance
- 8 Understanding The Work And Time Involved
- 9 Understand What Makes A Good Investment
- 10 Marketing And Selling Your Property
- 11 Summary
Is It Viable To Start A House-buying Business In 2022?
The short answer is a resounding yes. One property investor from Texas has some shrewd advice though. Tommy Weisz owner of Cash House Buyers USA says that you need to understand your local market and have a solid business plan. Below he outlines the general aspects that need to be understood when starting a house-buying business.
What Are The Aspects Of A House-buying Business?
To build any company you need a plan and a business model. Understand what demand there is in your locality, and what your potential profits could be. You will need to attract investors unless you are able to fully finance your operation. You must also identify who else you will need to run the business.
Some aspects of building a house-buying business include these:
- Business plan
- Market analysis
- Building a network
- Build your team
- Grow leads
- Understanding the time involved
- Establish risk and ROI
- Marketing and selling
Understanding the demand in your area for the operation you are planning. For example, the demand for housing in Austin, Texas, has declined recently. In July 2021, there were 3,251 homes for sale. But, in July this year, that inventory had increased by 168% to 8,709.
This could lead to more sellers looking for cash buyers and quick sales. However, you will need to factor in how long it may take for you to resell the property to see a profit.
Build A Network & Team
Buying distressed properties is one of the better ways to see a good ROI. Buy for a low price, and flip it for more after repairs and renovations have been made.
To do so you will need a good network of electricians, plumbers, construction workers, and real estate brokers. You will also need legal counsel, and you may want to build a team for the house-buying side of operations.
There are many useful tools for managing real estate properties, but without the right people operating them, you could struggle.
Financing Your Business
When any new business is started one of the most important areas is financing. Around 80% of businesses that fail do so due to cash flow issues. House buying requires large sums of money for purchasing property and then carrying out necessary repairs and renovations.
If cash starts to run dry during renovations then you may be forced to turn to other lending options such as hard money loans. These loans are useful to house flippers but they will eat into your potential ROI.
Grow Leads And Increase Traffic
Another reason to get a good team and network together is so that you become established in your local market. Becoming a local authority means that you will receive more leads, and grow your brand.
As the owner of a house-buying business, you need motivated sellers. These are the homeowners who are actively looking to sell their homes right now and with no delay.
Home sales in Texas dropped by over 5% month-on-month from April to June this year. This could mean more motivated sellers for you, but they need to be able to find your business.
Local SEO and the use of Google My Business can help propel traffic to your website. Becoming part of local relevant groups will help your reputation, and launch your business in the area too.
Licensing, Permits, And Insurance
Another expense but a necessary part of house buying is having all the legal paperwork in place. You will need to register your business and obtain an employer identification number if you plan on having staff. Business insurance will also be necessary.
Permits will be needed for construction work, and you will want to obtain commercial property and general liability insurance.
Understanding The Work And Time Involved
There are important elements to property investment including the risk involved, and the time it takes.
Fixing and flipping may sound like a quick way to make tens of thousands of dollars. But, in reality, it can mean serious renovations before a home is in any way fit to go to market.
As mentioned previously, the average time to fix up a home to flip is around 6 months. Are you financially able to wait for a minimum of 6 months to see a return on your investment? What happens if the work takes longer? A thorough understanding of the work involved in house buying and flipping is essential.
Understand What Makes A Good Investment
House buying gives the opportunity to multiply your income with every flip. Fixing up distressed properties to sell carries some risk, but with careful investment, and a good team behind you, you can see healthy profits from flipping.
The average amount made by flipping one property is comparable to the average annual salary in the US of $56,310. However, house flipping statistics show that ROI has been dropping year-on-year for 5 years at least. 9.6% of all house sales in quarter 1 of 2022 were from flipping. And the majority were financed solely through cash.
Sellers prefer cash buyers, and this can help to maximize ROI as the seller may be willing to take a lower offer. Also, the buyer has no loan to repay or interest to be concerned about.
Marketing And Selling Your Property
You will also need to have a plan in place to market and sell your homes. Through your network, you may have established connections with real estate brokers. Or, you may decide to market your own properties yourself.
Either way, you will need a plan that covers both marketing and sales if you are to ever turn your first house buy into a business.
A house-buying business has its risks as any other enterprise does. The facts are that the overall ROI for house flipping has been falling over recent years, yet it still remains a very profitable business model.
The amount of homes being fixed up to sell is increasing. With many distressed properties across the country and motivated sellers, the potential for building a house-buying business is clearly there.
With a proper business plan, a strong network, and a plan for generating leads, you will be on the path to making a successful house-buying business. Just don’t forgot your marketing and sales plan.