Real Estate Investors Guide to Micro Flipping

Many investors and real estate professionals are familiar with the process of flipping houses and properties. It involves buying a property that needs varying amounts of work, fixing it up and selling it for a profit. 

There’s another form of flipping houses that investors may be less familiar with. Microflipping is one way to buy and sell a property to try to generate a profit, but the process is much shorter than traditional house flipping and typically requires much less renovation. 

What Is Microflipping?

Property flipping is a popular practice among real estate investors and professionals. Typically, investors will purchase an undervalued fixer-upper property and renovate it, doing everything from major structural changes to updating appliances and cosmetic changes. Once it’s renovated into a desirable home, the investor will sell it for a profit. This process could take months or even years before the renovations are complete and the property is sold.

Microflipping takes this process and greatly shortens it. When microflipping, real estate investors will buy an undervalued property and resell it for a profit right away. Sometimes these properties are listed within days of purchase. Whereas traditional flipping involves varying levels of renovation, microflipping involves little to no repairs. The goal isn’t to earn tens of hundreds of thousands of dollars in profit but to complete multiple transactions earning a few thousand dollars in profit each time. If successful, this can add up over time to sizable returns.

Pros and Cons of Microflipping

Microflipping may sound like a great way to earn quick profit without completing a lot of labor. However, this type of real estate investing isn’t a good fit for every investor. To determine whether you should begin microflipping, consider the pros and cons.

Pros

• Potential for quick profits
• Low startup costs
• Opportunities to purchase properties farther away from the investor’s physical location
• No need for physical labor and assistance from outside contractors
• Can complete many microflipping transactions per month

Cons

• Low profit margin compared to traditional house flipping
• Investors need to complete several transactions per month to earn sizable income
• Fierce competition in a volatile market
• Requires a large time commitment and in-depth market knowledge to identify and sell property

Finding Profitable Microflipping Opportunities

To be successful in microflipping, investors will need to know how to identify profitable opportunities. This requires building a network of real estate professionals, understanding market trends and the resources to shop for potential properties. 

Researching Local Real Estate Markets

First, you should identify potential areas where you’d like to microflip properties. This could be markets that are close to where you reside or communities across the country. Once you identify these markets, you’ll want to find a real estate agent who will give you a detailed market analysis. Understanding the average property prices in the area will help you identify undervalued properties. Reports released by the U.S. Department of Housing and Urban Development’s Office of Policy Development and Research are a great resource to many investors.

Identifying Distressed Properties or Motivated Sellers

Distressed properties or properties that require a significant amount of work are typically undervalued, making it easy to resell them for a higher price. Additionally, motivated sellers often set the property price lower than the market value to sell quickly. You can identify these properties by doing local market research and searching online listings for undervalued properties. You may also have luck driving through neighborhoods to look for distressed properties or properties being privately sold. Real estate agents will also be able to use their connections to identify potential properties.

Building Relationships with Wholesalers and Real Estate Agents

Real estate agents and wholesalers will be able to provide detailed market insight and be able to identify properties for microflipping. If you’re interested in microflipping or partaking in real estate investing, having a network of trusted wholesalers and real estate agents will be invaluable. You can connect with these professionals by reaching out to them, attending real estate conferences and events and through online forums.

Using Online Platforms and Resources for Property Search

There are several online platforms that you can use to find potential investment properties. Real estate investment software will be able to track the financial performance of a property, giving you insight into its potential returns. You can also use online real estate sites to browse listings, visit online auctions and reach out to your connections in the real estate industry. The tools will help you identify properties and view important data such as how the price compares to the average market value, its transaction history and details about its neighborhood.

Things to Consider with Microflipping Real Estate

Before starting to microflip properties, ensure you're prepared to confidently execute every step of the transaction. Here are a few steps and challenges to consider to ensure microflipping is the right investment practice for you and to help your investments be as successful as possible.

Evaluating Potential Properties

Not every undervalued property will be a successful micro-flip. You’ll need to consider the market trends in that community, how desirable the neighborhood is, and how much work it’ll need to make it livable. This will help you determine how much you’ll be able to sell the property for. If you can only list it for a slightly larger price, the returns may not be worth the time and energy required to complete the sale.

Financing and Acquiring Properties

Unless you can purchase a property outright, you’ll need to have a financing solution. You could open a loan with a financial institution or private loaner. You could also partner with other investors to split the initial investment and share the profits. 

In addition to the price of the property, you’ll need to budget for closing costs in your financing plan. To successfully flip the property, you’ll need to plan for marketing costs such as professional photographs, copy for the listing description and real estate agent fees. To make the property look more desirable, you may want to do light renovations, such as fresh paint and cleaning, which you’ll need to budget for as well.

Executing Successful Microflips

To quickly sell a property for a higher price than you bought it for, you’ll need to make the property look more appealing, get the listing in front of prospective buyers and keep the entire project organized. To ensure you’re making a sizable return, you’ll need to understand market trends and keep track of the property’s financial growth.

Having connections with trusted real estate agents will help you identify potential investment properties and list them again when you’re ready to sell. You’ll also need to connect with reliable contractors you can rely on for any light renovations the property may need. Additionally, making the property look desirable will help increase its value, which can be accomplished by staging the property, taking professional pictures and improving the lighting.

Managing Potential Challenges

Not every transaction will go perfectly smoothly, so you’ll need to be prepared to deal with challenges if and when they arise. First, you’ll need to research local laws and regulations that affect real estate investing and real estate transactions. In the case that there are legal delays, you’ll be equipped with the knowledge and understanding to address it.

Also, prepare for delays in renovations or transactions that are dragged out. When creating a project management plan, ensure you’re aiming for realistic deadlines and have a backup plan in case you encounter obstacles.

Microflipping vs. House Flipping

Both microflipping and house flipping are the practice of buying a property and reselling it for a higher price. However, these two investment strategies are very different. 

House flipping involves buying a distressed property or undervalued property and conducting extensive repairs to resell it for a much higher price. While house flipping, the investors may pay for contractors to fix structural damages, change layouts, update counters and appliances and do landscaping. The goal is to make the property a desirable, luxury home so that they can resell it for a much higher price than they bought it for. This practice requires a lot more time and larger upfront costs to cover renovations, but they’ll earn much higher returns. 

Microflipping is a much shorter and less labor-intensive practice. Instead of conducting massive renovations, microflipping involves little to no repairs. Depending on the property, you may conduct small cosmetic updates such as painting or repairing walls and floors. You may also invest in professional marketing help to make the property appear more desirable. But microflipping primarily focuses on buying properties, and then quickly reselling them for a slightly higher price based on market trends. This strategy requires much less time and upfront cost but will earn smaller returns. Whereas house flippers may only do a few transactions per year, micro flippers need to conduct several transactions per month to earn a decent income.

Micro Flipping vs. Wholesaling

Another real estate investing process is wholesaling. Wholesaling also involves identifying distressed properties, but instead of buying the property, a wholesaler will use their network to reassign contracts. A wholesaler will reach out to a motivated seller, typically of a distressed property, and enter a purchase contract for a small deposit. Then, the wholesaler will use their connections to find an investor. They will then reassign the purchase contract to the investor for a higher price. The wholesaler takes the difference in price as a wholesaler fee.

Wholesaling doesn’t involve buying and reselling properties the way microflipping does. A wholesaler is only reassigning contracts, acting as a liaison between sellers and investors.

Is Microflipping Right For You?

Microflipping can be profitable but is not the right investment style for everyone. To be successful in microflipping, investors should have the time to spend identifying, buying, marketing and reselling multiple properties per month. Investors who microflip should also have an extensive understanding of the real estate market and connections with other real estate professionals. This is not a good strategy for passive investors. 

Investors who have in-depth knowledge of the real estate market and are looking for a unique way to earn extra income or grow their investment portfolio may find microflipping profitable. These investors should be ready to leverage technology and market data to quickly resell properties. 

Earn Income From the Real Estate Market

There are many ways to invest in the real estate market, from real estate investment trusts (REITs) to purchasing full properties. Microflipping allows investors to quickly earn returns from buying full properties. It doesn’t require as much time and labor as flipping houses and earns more income than investing in a REIT or small crowdfunding opportunity. 

Microflipping can be risky and requires a full understanding of the real estate market to know how much you can resell a property for. Microflippers should be prepared to finance several projects per month to earn a decent income. But if done with informed decisions and the right connections, microflipping can be a successful real estate investing strategy.

Frequently Asked Questions