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Stay Safe With Contractors When Flipping Houses for Profit

Investors interested in refurbishing and reselling distressed properties often want inexpensive repair work, but it is important to avoid a contractor scam. Any contractor who offers significant discounts, makes large promises, asks for a lot of money up front, or wants to work without a contract should be avoided.

If you wish to start flipping houses for profit, you will need to work with contractors in order to rescue distressed property so that they're ready for resale. However, some scam artists prey on new investors, especially, by posing as contractors. Since a scam contractor can cost you thousands and can severely reduce any profits you might expect from house flipping, you'll want to watch out for:

1) Contractors soliciting door-to-door. Very few professional contractors need to do this. While some legitimate contractors may use this marketing technique, you have no way of tracing the legitimacy of a contractor who solicits this way.

2) Special prices or discounts that seem suspiciously low. Be especially wary if you are told that you must sign up right away in order to get special pricing. Be extra suspicious if you're asked to give money up front in order to qualify for the special pricing. Professional contractors may occasionally offer a discount, but they do not do so with a hard sell and they cannot afford to offer hugely slashed prices while also offering quality work. If someone is offering to do the work for a fraction of its actual price, you need to wonder where the corners will be cut. You also need to consider that some contractors who are scam artists will slowly increase the price of the work as they go along. Therefore, that surprisingly low figure will end up being a much overcharged amount by the time the job is done.

3) Contractors who want to work with no contract. Some contractors will try to make it sound as though they work on just a handshake. You should never have any contract work done without a legal contract in place. A contract protects both you and the contractor, so any professional contractor will naturally want to have a contract in place. The contractor who does not have a contract in place knows that he or she can walk away at any time, since no official agreement was made.

4) Large down payments. About a third of the total cost of materials is generally the maximum down payment required. Be very suspicious of anything that requires a larger down payment.

5) Long-term warranties and lifetime guarantees. Coming from a contractor who has not been in business very long, these may simply not mean much because there is no guarantee that the contractor will be in business for very much longer. Also, many of the very long-term warranties only apply to parts, rather than labor. Therefore, you or your future house owners will still be responsible for large share of the costs of any repairs. If you are flipping houses for profit, you'll want to make sure that any warranties can be transferred over to the new owners as well.

6) No business address. Look out for contractors who only have a PO address, a single private phone number, or no good way of getting in touch. These people can easily disappear overnight. Look for contractors with an established retail business or an address that has been around for at least a year or more. Make sure that you can track down the contractors if anything does go wrong. When flipping houses for profit, the last thing you want to have to deal with is a shoddy repair job and a contractor who has suddenly skipped town.

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Flip Houses Online

Nowadays, real estate market always changes its supply and demand quickly. While some people want to sell their house in haste, the other is going to buy house immediately. To you, this is a good chance, because you can earn much money from the change. But the efficiency is low. If you want to ensure your high successful rate, you'd better make use of internet and learn how to flip houses online.

Step1

Evaluate your potential property. There are no guarantees in real estate. However, if your property meets certain requirements, you can make an educated guess about how investors will react. For example, a property needs to have a fair amount of equity in it for the investor to justify the sale. Also, if the property needs repairs, you will need to get estimates for these as well as comparable prices on other houses in the area. Once everything is factored in, the investors will still want to see a significant profit potential at the end. For example, a house that appraises for $100,000 and that needs $20,000 in repairs will not be a good candidate if the seller wants $70,000 for it, because that leaves the investor with only about 10 percent equity after he completes the repairs. Obviously, you should consult with a financial professional for help in determining if a property is viable.

Step2

Get the property under contract. If you determine that the property is worth trying to flip, get it under contract. Your contract needs to allow you to assign the contract to another investor as well as protect you in the event that the property does not flip so that you are not stuck with the house. You can find contracts for this type of thing online, or you can hire a lawyer to draw one up for you (see Resources below). You should never use a contract that has not been approved by your lawyer.

Step3

Build a page on your blog with the details about the property. Once you have the property under contract, build a blog page devoted to this property. It should include every single detail you know as well as address issues that the investors may have, such as why you do not keep the property for yourself if it is such a good deal. This particular issue is easily resolved by pointing out that you simply do not like to hold property, but prefer to flip because it is easier, even though a long-term investor makes much more money.

Step4

Notify your email list of investors that you have a property. Send your list of real estate investors an email that directs them to your blog page where they can learn all about this property opportunity. Let them know how to get in touch with you if they are interested in doing the deal. Do not give them contact information for the seller, or you may find yourself excluded from the deal.

Step5

Select the most promising investor and work with her to do the deal. You can do the due diligence work yourself or make that part of the investor's responsibility. Before the contracts are signed, you should run everything by your lawyer again to make sure that everything is properly written up.

Step6

Take your cut and remove yourself from the transaction. Generally, you will receive your cut when the transaction closes. Remember, once you sign the papers, this is no longer your deal, so you do not need to field phone calls or help with due diligence unless your contract stipulates it.

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