subject: Flipping Real Estate For Profit [print this page] A few years ago television shows abounded that showed all sorts of people trying to flip homes. Their failures and successes were recorded for the world to see as they purchased property, fixed it up and sold it for a profit. Or not. And that is what separates the winners from the losers. When it comes to flipping real estate, you'd better know what you're doing because even simple mistakes can turn into financial disasters.
When the concept first became popular, the homes that were being flipped were usually in pretty bad shape. They had perhaps been abandoned for quite some time, or they had been condemned because of a fire or even a flood. These homes might be purchased from the actual owner or they might be purchased from a bank. In either case, the person or people buying the home assumed that they could completely rehab the house, sell it, and make a tidy profit.
The trick to a successful flip is finding a house at a price low enough, using as little money as possible to fix it up, and then turning it over quickly for a profit. Easier said than done! If you can handle a lot of the work yourself, great. If you can handle the huge expense of hiring contractors, great. But the minute you start paying a contractor, your profit plummets. In either case, this isn't the time to learn how to use all the tools in that tool box that has done nothing but collect dust in the garage.
For instance, a good flip would be to purchase a house for about $50,000. Plan on $110,000 to fix it up. (You need to either have this money, or get a mortgage. Just remember that no matter what happens, it's your responsibility to pay the mortgage!) Hopefully before your first mortgage payment is due all the work is done, and the house will sell. Let's say it sells for $190,000. Your "profit" would be $50,000.
Now take all your expenses out of this $40,000 (closing costs, broker fees for the sale, and maybe even some mortgage payments you needed to make because the project took longer than you had planned).
If you're still interested in making that fortune in flipping real estate, there are a few things you should consider prior to making a final decision. How long can you afford to hold the house if it doesn't sell? No sense going bankrupt! If you can't do the work yourself, can you afford to hire licensed professionals? What are your plans if the rehab has problems - perhaps you learn the house is covered in mold once you take the walls, and the site is shut down until your spend $20,000 to have the mold removed?
Know your expenses before hand. Have the property completely inspected before making an offer - you need to know everything that needs to be fixed. Surprises can be costly. Don't over-improve for the area. Above all, remember that you are only trying to fix, and sell. Don't design something so unique that only a few people would be interested.
