If you closely follow real estate investment trends, you may have heard the term “micro flipping” thrown around recently. While some large companies like iBuyers, Zillow, Redfin, and Opendoor have been utilizing this strategy for a while, it is becoming increasingly popular among individual investors. Micro flipping is a type of wholesaling strategy in which technology and data are used to find undervalued properties. Despite the name, it does not involve a micro amount of renovations before selling. In fact, investors typically never even see the property in real life! But protecting your interest, no matter how long you hold a property, is extremely important.
What is micro flipping?
As mentioned above, micro flipping is similar to traditional wholesaling but with a few key differences. Wholesalers work with the sellers of distressed and undervalued properties to arrange purchase by an investor who plans to rehab the home. The wholesaler may never take ownership or have any insurable interest in the property.
In contrast, micro flippers search for and purchase properties that require zero sweat equity. Micro flippers do most of their work from a computer, using software to analyze data and find properties listed below the market price. A micro flipper’s goal is to purchase an undervalued property and sell it almost immediately at a properly valued sale price. So, the term “micro” describes how quickly the transactions happen. Think of it like day trading real estate.
Micro flipping is a volume-over-profit real estate investing strategy. It is common for investors to only make a few thousand dollars on each property. However, the upside to micro flipping is that you can make multiple deals in a short amount of time because the process moves so quickly. So, if you close four deals in an eight-hour workday, you could make around $10,000 a day- all from the comfort and convenience of your own home.
Micro flipping is legal in most U.S. states, the exception being Illinois. Although it is not technically banned, Illinois has put many regulations in place to make it very difficult for investors to utilize this strategy. Before beginning any new business venture, it is always a good idea to review local laws and/or speak with an attorney to ensure you follow regulations.
What insurance do I need for micro flipping?
Any real estate that you own should be insured – whether you own a property for hours, days, or years. If something were to happen at your property during the period you own it, you (or your company) could be named in a lawsuit or have a property claim on your hands.
The minimum coverage you should carry on a micro flip property is Premises Liability. We cannot stress this enough – even if you only own the property for a couple of hours, something could happen. If someone were to injure themselves on the property during that short amount of time, you will be thankful to have liability coverage. You don’t want the headache of an uninsured loss while your name is still on the deed. For the same reason, we also recommend that you consider Property coverage for any loss that may occur to the property itself. While unlikely, it is possible for a fire, vandalism, or some other property loss to occur while you hold the location in your name.
Real estate investors, and especially those who micro flip, rely on a computer system or network to conduct day-to-day business. For this reason, you should strongly consider Cyber Liability coverage. Cyber attacks on small businesses can range from hacked email accounts to unauthorized wire transfers and credit card fraud to personal data breaches and identity theft.
Business Liability is another coverage we recommend to all real estate investors. Business Liability covers the business, not the location, and offers Personal and Advertising Injury coverage. This protects your business against claims of slander, libel, copyright infringement, marketing misrepresentation, etc.
Finally, if you choose to obtain your real estate license, you will need to purchase a Real Estate Errors & Omissions policy to cover your business practices as a licensed real estate agent. As you may know, E&O protects against mistakes and oversights that lead to a lawsuit. This insurance can help cover legal costs that might otherwise negatively impact you and/or your business.
How micro flipping fits into our program
NREIG’s innovative program is designed to support the varying needs of all real estate investors, regardless of your investing strategy. We can provide Premises Liability and Property coverage with no minimum earned premiums. Meaning you only pay for coverage during the month(s) you need it. Our online portal also simplifies the process of adding and deleting locations from your account- just one more thing you can do from your computer!
Cyber Liability, Business Liability, and E&O are offered through our partnership with our commercial insurance partner at Sandstone Insurance.
Contact your Client Service Advisor if you have any questions.
Learn more about the other creative investment strategies we insure here.