subject: Flipping Houses [print this page] Flipping Houses - 10 Steps To Huge Profits While Minimizing Risk
People always need a place to live. As a real estate investor, you can provide this service by buying a distressed property, fixing it and selling it for a profit.
Flipping houses, otherwise known as Fix and Flip, is usually a short-term real estate investment strategy involving a quick turn-around and quick money. You will usually make the most profit flipping houses as you hold the highest risk, unlike wholesalers.
Time is the most important element to flipping houses because the clock is ticking and time eats money. You need the initial time to find properties and contract for repairs. You need time to market and oversee the marketing of the properties.
Part 1: The Purpose of Fix and Flips
Successful real estate investing is a balancing act. On one side, you need a business model providing you lump sums of cash. Flipping houses is great for that as you can make big chunks of money in a relatively short amount of time. However, you will keep working and working with no end in sight unless you also focus on the other side, which is long-term wealth through rentals, passive income, etc.
You take your big chunks of money inside your business and put that into long-term passive income real estate investments giving you the best of both worlds.
There are some advantages to doing Fix and Flips besides the monetary considerations. There are many real estate related deductions that are possible, the neighbors could love you for improving the neighborhood, you can provide jobs to friends and family and you could possibly start real estate related satellite businesses.
Part 2: The Process
In simple terms, you buy a house with equity at a low price. Depending on the market, you might have to buy even lower to make the numbers work. Then you fund the house, you fix it up and finally sell it at ARV (After Repair Value) or at market rate for a profit.
Then you just repeat the process again and again, but you must always be aware of market conditions so you can adapt quickly to changes and remain profitable.
Part 3: Research/Pre-Acquisition
You want to identify your target property, but it's critical to know your criteria. You need to identify positive factors and situations that should be avoided. There are three main property types - good, bad and ugly.
You want to always get photographs of the property. Investors need to know and understand cost estimating. New investors frequently under or over estimate the cost of repairs.
As a rule of thumb, the worst looking house in the neighborhood should be the one you want for flipping houses.
Part 4: Financing and Funding
This is where it gets interesting, especially depending on the economy that you're currently in right now. No matter what economy, these are the general types of financing that investors use.
* Hard Money
* Conventional
* Non-Conventional
* Seller
* Credit Cards
Hard money is probably the most popular for flipping houses, but understand that hard money is a short-term funding not to exceed a 6-month term.
Part 5: Acquisition
Meeting with the seller is a critical move, unless it's a bank owned house or a property bought at auction. This will allow you to assess and discuss the property condition.
Always have at least 3 methods to acquire the property in case your first method isn't possible. Having skills in negotiations will reap huge monetary rewards for you. Furthermore, nothing gets done unless the property is under contract. Have your contracts ready to go. Be sure to get advice and counsel from an appropriate real estate attorney.
Part 6: Escrow
Escrow is an agreement between two or more parties providing that certain documents or money be placed with a disinterested third party for safekeeping while carrying out instructions of the purchase contract.
Part 7: You Own It. Now What?
You want to get insurance, warranty and security. You own the property and it should be in the name of your entity, not your personal name. First thing to do is to insure the structure.
You may also want to look into getting a home warranty plan to see what it would cover vs. the cost.
Finally look at the security and determine if you need to change the locks and/or replace or install a security alarm system.
Part 8: Repair Concerns
Repair concerns generally involve money, time, doing it yourself vs. using contractors, and what team should be assembled. Money is a limited resource even if credit cards and miscellaneous cash are available.
Remember every dollar overspent is one less in final profit. Steps to completing flipping houses do not include gutting the house. Also, return all new items that aren't used and save all your receipts.
If you are going to use contractors, always obtain 3 estimates. It pays to shop around and compare/contrast services. Offer repeat business and ask for lowest possible prices.
Part 9: Marketing and Selling
The important aspects of marketing and selling the house are advertising, incentives, staging, open house, and sales technique.
With technology today, there are great listing services, such as sellpoint, which allows you to upload your property to one site and the listing service will automatically put your house in multiple places where people can search for and buy your property.
A cool tip is to buy a basket of safe toys and books for the house. The toys and books will enchant the children and keep them occupied, allowing the parents to "shop" the house.
Part 10: Other Issues
This is the time to analyze the process and ask what worked and what didn't work. Look at all possible factors and make changes if necessary for your next house flip.
Make sure you address all seller disclosures.
Final Thoughts
GET EDUCATED AND STAY EDUCATED!! It's imperative to get educated first so you have a working knowledge of what to do before you get started. You will minimize your exposure and risk and definitely maximize your results. Not getting educated will work exactly the opposite.
Find a community of like-minded investors and mentors who are already "walking the walk" and associate yourself with them asap. Take advantage of your local library and all the free seminars.
Network all the time with other investors, at investment clubs, home improvement stores, neighbors, etc.
At the end of the day, flipping houses is a people business. The more you can effectively communicate with people and the more you can solve their problems, the more lives you will change and the more money you will make. The more you give, the more you shall
