With house prices going through the roof in a global marketplace, the question arises in the real estate world: can property investment turn into profit? Fortunately for home flippers, statistics reveal that 2015 resulted in staggering $55,000 of profit nationwide, the highest average gross profit when it comes to homes flipped in the last 10 years. Nevertheless, the fact that home flipping is a somewhat risky business cannot be neglected and should be approaches wisely. It is definitely a lucrative industry, but to fully enjoy the perks, some basics have to be taught.

1. The I2 (Initial Investment)

In order to flip houses, initial capital is an absolute must. Not many are able to single-handedly finance their first venture, so what are some of the other options? Aside from turning to bank for a loan (an option not many are fond of), finding the joint venture partner is considered an attractive opportunity to not only gain sufficient funds, but also earn valuable experience.

2. Do the math

Once the money is no longer the issue and you’re looking for a property to invest in, always have in mind After Repair Value (AFV), the amount that the property will sell for after the renovations. One general rule states that your total investment for buying and rehabbing the property should not go over the 70% of its ARV, if you wish to make profit that is.

3. (Market) Location, location, location

Although a cliché, the importance of the location of the property cannot be stressed enough, and in a down market we live in today, finding a superior one can be a challenge. Experts from Flip2Freedom emphasize that familiarizing yourself with the area you are working in is essential; see whether the property prices are on the rise, is the neighborhood an established one, what is the demographics like, etc. Especially if you are working with residential properties, schools and other educational institutions in the area can make a huge difference. Doing your homework will help you spot good deals and avoid bad ones, as well as aid you in negotiating prices, either as a buyer or a seller.

4. Know your clients

Aside from studying the area you are working in, pay close attention to the people who are looking to purchase property in the neighborhood. For example, if you’re hoping to flip a house near an elementary school, it is evident that your prospect clients will be families with kids. Keep it in mind the entire time you are rebuilding the house, since you will be adapting it to their needs, not your taste.

5. Brag about it

Finally, once the property is rejuvenated, it is of utmost importance to present your buyers, agents and inspectors with the list of changes you have made. You know you have created some value from the scratch and others should be aware of it too, since only then will they fully appreciate the property you present them with. However, be careful not to overvalue, as the only thing worse than underselling the property is not selling it at all. Check the neighborhood’s general price point and stay in the lines of it.

Author's Bio: 

James D. Burbank has worked for years in traditional as well as online marketing. He has worked in Central Asia, Europe and Australasia in recent years.