In the land flipping industry, it is a common question to be curious about the differences between land flipping, and flipping houses or other kinds of real estate. While the two business models definitely offer some similarities there are some key differences that really showcase which is the better option. The main differences are speed, funding terms, and work required.
What is Land Flipping?
Land Flipping is the act of buying raw, vacant land for a steep discount, sometimes 30-40% of market value and selling it for 80-90% of the market value. This method does not require any timeframe or improvements to the land. Actually, the more undeveloped the land is the better the deal is. Land flipping is a very niche market of real estate investing that from our research provides the most profit, and least competition out of any sector of the real estate industry.
What is House Flipping?
House flipping is when an investor identifies a property, usually a single-family or multi-family home that is damaged or underdeveloped. They then put money into the improvement of the home, which can range from a couple of thousand dollars to tens or hundreds of thousands of dollars depending on the property size and type. This process can take anywhere from a couple of months to years depending on the improvements made, it also requires more upfront investment.
Speed
Speed is a key factor when talking about your investment. Some options for funding deals either in land or house flipping can come with them certain stipulations. For example, some deal funding partners will require a time horizon to see their investment back, or they will require a larger % of the profit split. For land flipping, if you are working on improvements via a loan you will obviously be charged a higher and higher percentage of interest as you do not pay the loan back.
For the most part, land flipping is a much faster process compared to house flipping depending on the market environment and location.
When land flipping, we prefer to look at markets where properties are moving quickly as some deals will only need to be on the market for days or a week or two.
Funding Terms
Coming back to funding terms, it is rather straightforward in either focus but both niches require different terms.
Regular or hard money loans are the most conventional way of finding capital for house flipping. The longer these loans go on without being paid back in full, the more interest they will accrue and the more expensive that loan will then be for you. Remember, when you take out money to fund a deal in any industry the person who is loaning you that capital will always require a profit. Money is not free.
In land flipping, conventional deal funders will look for a profit split between the investor and person who is sourcing the deals. Usually, that profit split will be 50/50 to start and the party which is sourcing the deals can work up that % that is paid to them as they continue to showcase their consistency in finding profitable deals.
Most land flipping funding deals will have time stipulations, usually 6 months or 12 months. If the deal has not closed and profit sent to the investor in that timeframe, they may require more of a % in consideration for time.
Work Required
Land flipping definitely takes the win in regard to the work required. Land flippers are looking for VACANT and RAW land meaning there is no development at all. No development is required for a deal as they are only dealing in raw land. The money is made on the purchase when buying at such large discounts.
House flipping almost always requires large amounts of capital to improve the assessed value of the home and therefore the profit made on the deal. If you are looking at house flipping, you definitely have to factor in improvement costs which again can range from a couple of thousands of dollars to potential hundreds of thousands of dollars.
Which is best for you?
This question is not an easy one to answer. For the most part, house flipping requires more capital and more time than land flipping but may be potentially better in terms of funding deals.
Do your own research and due diligence on both types of investments, and come to a conclusion that way.
If you are curious about either, be sure to join our FREE network of all different kinds of real estate investors.
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