Flipping Land vs. Flipping Houses: A Pros and Cons Approach

We help thousands of people get their real estate career started or enhance the one they have. A substantial number of new members ask me what the difference is between flipping houses and flipping land. Here is my answer (both wholesale operations and assume doing no house improvements.)

Cash Requirement

Land: Requires less than $1,000 to become a property owning investor. Double or triple cash balance from there.

Houses: In nearly all cases, it requires a lender or partner to begin.

Land investment is more accessible due to a lower cost of entry.

Property Visit Required?

Land: No. Land flipping is very scalable. We never look at the property we purchase, which means we operate in many states. I haven’t left my desk since 2008.

Houses: Yes. House flipping is usually confined to a single geographic area where houses need to be “walked through.” At best you can set up another shop in another area.

Land wins here, hands down.

Deal Structure

Land: Buy for cash (usually less than $1,500.00) and sell for cash. Just the buyer and the seller. It is all managed through the internet. Land deals are easy to close.

Houses: Buy with financing and sell for cash. Both sides requires an agent, a lender, an appraiser, an escrow agent, an inspector (at least five parties) and the buyer and seller. Each party gets a piece of the profit. Selling a house requires a lot of people and time which can kill the deal.

Land wins.

Profit Margins

Land: We never buy land unless we know we can double or triple our money within days of the acquisition. 100% to 200% margins quickly are the norm. Land deals are better, faster, and cheaper

than flipping houses. However, you do need to do a lot of them to bring in a substantial living.

Houses: The best wholesale house flipper regularly makes 20%. Buy for $100K and sell for $120K or so.

Deals take 30 – 60 days to close. House deals are slower, harder, and show less of a profit margin. On the plus side, you only need to do a handful of these deals per year to make a good living.

Land wins.

Income Stream Potential

Land: Buy for cash and sell on terms to collect monthly payments for years.

Houses: Buy for cash or with a lender, rent or sell on terms for years or forever.

Land and houses are just about equal in their income stream potential.

Asset / Inventory Management / Carrying Cost

Land: Requires no management except for paying the annual taxes (it’s usually worth the same amount if it burns to the ground).

Houses: Require constant maintenance and expense. We could fill pages with how much it costs to own a house.

Land wins.

Acquisition Availability Pipeline

Land: Nearly all unimproved land is mortgage free. This makes filling up the acquisition pipeline a breeze with a well-planned direct mail campaign. There’s a ton of price negotiation room. Most of the land we buy is “unwanted.”

Houses: Most houses have associated financing. Owners are not free to negotiate below the mortgage amount. While not impossible, this makes for a more challenging acquisition pipeline.

Land is the clear choice here.

Liquidation / Ease of Sale

Land: With the advent of the internet, making rural property available takes just minutes. If it’s priced right and posted on the right websites (Landwatch, Land and Farm, Zillow, Trulia. eBay etc.) it sells within days.

Houses: If a house is purchased property, it sells within days (same as land). It takes a month or two to complete the deal (see Deal Structure above).

Land and Houses are about equal here (except for closing time).

Conclusion:

Land flipping is a great place to begin or enhance a real estate career. House flipping can be very profitable but the barriers to entry are much higher and more complicated.

Both can yield tremendous return.

It’s simply much easier to make the same amount of money flipping land vs. houses.

You are Not Alone in Your Real Estate Ambition. www.LandAcademy.com