Micro flipping is a phrase that’s been gaining steam in the real estate industry recently and is a new market sector that everyone should know about. Done right, this is simpler and less risky than conventional house flipping and can also be very lucrative. Done wrong, it could land you with some serious financial headaches.
Technological advancements are made with each generation, but it’s fair to say that technology is evolving faster now than it has in the past. With all these developments, the way we do business has changed dramatically.
Many organizations, including Real Estate Skills, function completely online. Remote selling of stocks and shares is possible too, which has opened trading possibilities to the general public that used to be available to professional brokers only.
Micro flipping is a clear example of a business model that really only works in this day and age, where internet resources allow you to access large, complete sets of data. Analyzing and organizing the volumes of information is possible because of connectivity and software.
With the extensive abilities that technology provides, anything that is put on it will potentially reach audiences of different backgrounds. Social media sites and online messaging platforms help make those connections and the spread of information possible. We’re going to explain how these advances intersect with modern real estate investing.
We hope you’re enjoying Micro Flipping: The (Ultimate) Guide! Keep scrolling to read through the article or use the menu below to jump straight to your section of choice.
The “micro” in micro flipping refers to how quickly the process happens, how much effort you will have to put into getting a house ready for sale, your level of risk, and your potential for profit.
A good definition of a micro flipper is an individual or company who buys and sells homes fast, using technology and data. No rehabbing, demolition or any other structural changes are required to micro flip property.
Generally, you’ll have smaller profit margins when you micro flip, but you’ll also be able to move it a lot more swiftly and will shoulder less risk than when renovating, remodeling, or refurbishing before selling. On balance, that can mean you earn thousands of dollars for every hour of work.
While some flippers start by buying and reselling one or two houses, many have several purchases and sales going on simultaneously.
The definition of micro flipping can be expanded from fast flips to fast flips done in high volumes; something that can lead to comparisons with wholesale real estate.
Real estate wholesaling and micro flipping have a lot in common, so it’s easy to confuse the two (or to wonder if there’s any real contrast at all!). As you’ll see, there are differences between these two investment strategies, and they’re significant enough to view the two approaches as parallel.
The two major distinctions are:
To further unpack the key variances, real estate wholesalers look for undervalued properties and distressed real estate that's in need of repair. Wholesalers find these properties using off-market strategies like yellow letters, direct mail, and bandit signs, or looking for deals on the Multiple Listing Service (MLS).
They then put time and labor into active oversight of the legal side of things when tying up and flipping those contracts to other real estate investors, who will rehab or renovate them before selling or leasing them for a profit.
Micro flippers, on the other hand, focus primarily on properties that need little to no work, so that they can buy and sell in the shortest amount of time possible. Additionally, they focus on digital lead generation strategies, including using smart real estate software, data analysis, and online real estate listing websites.
There are risks, though. The real estate they purchase may not be worth their time and money, and the higher prices they sell the properties for could see potential buyers or investors drop out, leaving the micro-flipper with a slow mover on their hands.
Micro flippers also look for deals that are not on the market, but only when they have buyers lined up. Micro flippers, as well as reverse wholesalers, only pursue properties when they have cash buyers lined up. This approach offers you a more reliable and consistent exit strategy, even if the amounts you make are smaller.
Conventional house flipping refers to purchasing a home not to live in, but to sell for a profit. Usually, that profit is derived from capital improvements (i.e., bathroom and/or kitchen remodels, complete rehabs, or structural improvements like an old shingle roof vs a metal roof), from price appreciation in the area, or both.
House flipping can take several weeks to months and may require a good amount of capital. Either you’ll need to buy a home and then maintain it in good order until the market heats up enough for you to sell it at a decent price, or you'll need to organize and pay contractors, landscapers, and other home improvement professionals.
Micro flipping is usually less of a hassle since large investments of time and money are not required. Instead, the most important resources you’ll have at your disposal are full data sets of buyers, sellers, and markets, and skills at how to use and interpret that information.
In either strategy being able to observe a real estate market to understand the market value of a particular piece of property is essential. In other words, house flippers and micro flippers alike must be able to determine the after repair value (ARV) of a property.
The low-risk element of micro flipping is also thanks to reselling properties, as is. Your investment is kept to a minimum, as you don’t need to pay contractors, builders, suppliers, and other service providers to rehab or renovate those homes and produce something with selling power.
The many aspects of renovation that must be brought together successfully would make the process far costlier and riskier. You’ll find it difficult to sell the home if the renovations are not cohesive.
Furthermore, the time it takes to rehab a property isn’t in keeping with the speed element of micro flipping, which emphasizes moving high volumes quickly. As a micro flipper, you don’t want to hang on to a property for more than a few weeks.
Conservative estimates of micro flipping revenue suggest that every flip can net between $5,000 and $20,000 in clear profits. That’s a tidy sum, especially for a total amount of work time that can be measured in hours rather than days.
You might think that individual investors like yourself can’t compete with these firms but, happily, you’d be mistaken. Interestingly, many home buyers are turning down large corporations’ offers.
Your edge is your personal touch, your ability to move faster as an individual so that you can snap up the best deals, and your identification of potential markets that big businesses have not yet infiltrated.
For instance, when a seller is facing foreclosure, a personal touch can make all the difference when coping with the situations and understanding their options.
Many areas are still largely unpenetrated, and thanks to online connectivity you can tap them all.
By now, it should be clear that the key to successful micro flipping is to do as much homework and research as you can. The concrete steps that you can take are:
Remember, you’re looking for real estate that you’ll be able to sell at a higher price than what you pay for it. This could be because the owner has to make a sale very quickly and will accept a lower offer than they would if they weren’t under pressure, or because they don’t realize how hot a location is.
Whatever the reasons, once you’ve acquired property, you need to shift it to a buyer as speedily as possible. And after concluding a deal, it’s vital to keep moving and maintain your momentum. The secret to micro flipping’s profitability is that it balances small profits with frequent sales.
Some successful micro flippers aim to invest no more than a few hours in every deal. They make a point of seeing their micro flips bought, handled, and paid for within a week. The approach can be seen as buying and selling the rights to acquire specific properties.
Several developers offer comprehensive software for identifying properties and managing your micro flips, so choose the one you find most user-friendly. Generally, you’ll be allowed to trial the technology for free before buying it, so take your time and make an educated choice.
While personal preference plays a part in the products you ultimately decide to use, there are also several non-negotiable factors when it comes to effective tools here. Don’t consider any micro flipping software that doesn’t meet the following requirements:
Another serious factor that you need to consider is how you’re going to finance your micro flipping endeavors. There are several avenues available here, including cash sales, private money, transactional funding, and hard money loans.
Here's a short video from a real estate lender that explains how transactional funding is used to double close a real estate deal:
In real estate parlance, hard money loans are helpful short-term solutions that allow individuals to raise funds quickly at relatively high-interest rates. The house is used as collateral, and terms are negotiated between the borrower and the lender, which is usually not a bank.
Because hard money loans aren’t conventionally executed, the funding time frame can be considerably reduced. In addition, even in situations of repayment defaults, it’s still possible for hard money lenders to make a profit. The system has advantages for both parties and is often the best micro flip option.
Once you’ve identified the properties you’re interested in and you know how you’re going to fund the sales, it’s time to contact the sellers. As with anyone in the real estate business, you need to make sure that you do this in the right way.
You should create an impression of someone who knows what they’re doing and is keen to make a purchase, while also giving people enough space to think your offer over. The personal touch and lack of overenthusiastic pressure may well be the difference between you and a big corporation.
Draft a professional message and explain why you’re interested in buying homes in that specific area. Contacting the sellers on all their available channels is fine, but once you’ve done that give them time to respond. If they haven’t answered in a few days, you can get in touch with them again.
Buyers could be people looking to move into a neighborhood, suburb, town, or city, or those large organizations that you’ve worked so hard to distinguish yourself from. Remember, a lot of homeowners don’t want to sell to what they think of as nameless, faceless corporates.
That gives you the perfect opportunity to act as the middleman and sell the purchase contract directly to a larger company. They’ll be happy to take the binding agreement, which means that the sale is locked down, off your hands if it’s for a building that they’re really interested in.
Selling the contract is completely legal in all US states. In Illinois, recently created laws restrict the flipping of these agreements to one per year unless you have a real estate license.
Either way, this can be finessed and is best done in consultation with your real estate attorney. Besides assigning the contract, double closing, entity assignment, and traditional buying and selling are effective ways to quickly flip a property.
If you're buying the property outright, consider working with a real estate agent to find the perfect buyer or list the property on the MLS.
Read Also: Cash Buyers - The Beginner's Guide
Once you’re flush with the success of your first or most recent micro flip, make sure you use this energy to keep moving forward! Larger firms should know your name as a reliable source, who regularly buys and sells undervalued properties so that they call on you regularly.
At the same time, keep your eye on as much information as you can. The data could be on overall home prices, widespread job cuts, or anything else that will help you identify and then snap up a bargain that you’ll be able to flip for a profit.
Very importantly, you shouldn’t hold out for a better price for too long. While you don’t want your profit margin to be excessively narrow, the name of the micro flipping game is also to shift real estate as fast as you can. With a high-interest loan, you might lose more money than you make by waiting for a bigger offer.
Compared to other forms of real estate investment, micro flipping has low startup costs and, thanks to its digital nature, can be done from anywhere. Unlike traditional fix and flip homes or purchasing rental property, you’re not looking to see how much potential a structure has, or how good its “bones” are.
Let's be real, micro flipping is not passive income. Yet, it's more than a simple real estate trend and can be much more lucrative than a typical 9-5 day job.
You don’t need to source reputable contractors, plumbers, or landscapers, which should save you a lot of hassle, but you do need to spend time really evaluating and understanding the data.
Think of micro flipping as brisk stock trading, rather than long-term investments that you want to look after as you watch them grow. The more time you spend studying real estate trends and seller behavior, the better equipped you’ll be to act quickly and efficiently when opportunities pop up.
The faster you make a sale and the fewer hours you spend on the process, the greater your hourly earning rate will be. The phrase time is money certainly applies here – so make sure you don’t work harder, but smarter, using the best software and information at your disposal.
As you gain experience and contacts, micro flipping should become increasingly lucrative for you. Focus on small-but-tidy profit margins and keep a close watch on developing and established markets.
With all of this in mind, you’ve got a solid idea of what this fast-paced real estate investing strategy is all about.
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