Flipping Houses: 3 Ways to Make Money Investing in Real Estate
The term flipping seems to be everywhere nowadays, including in the titles of a number of television shows that have attracted loyal followings. That means lots of people are interested in buying houses and reselling them at a profit. That’s the good news. The bad news is that there’s considerably more competition for fixer-upper homes than there was before the concept became so popular among television viewers.
But that doesn’t mean there isn’t still a significant amount of money to be made buying and reselling homes. Here are three tried-and-true ways to succeed at becoming a successful home flipper.
Fixing and Flipping Houses
The first one is the most popular, and the concept is quite simple (at least on the surface): you find a home that’s in need of repair or upgrading, you go in and do whatever work is necessary, and then you put the home on the retail market. Depending upon where you live, how hot your market is, and how good of a bargain hunter you are, you can sometimes make $25,000 (or much more) on a single transaction.
There are some dangers involved in that strategy, of course, including paying too much for the property in the first place and then in underestimating how much the repairs or upgrades will cost. In fact, the latter situation provides one of the most common points of tension in the various television shows devoted to flipping houses, so it’s best to have a solid knowledge of home prices and repair costs before you attempt any flipping method.
Fix, Hold, and Sell Later
A second method that works well is to buy a rundown house, do whatever it takes to bring the property up to standard, and then to rent the home on a lease-option basis. There are some advantages to this method. First, you can get a potential buyer into your home without having to pay a real estate fee. Second, you’ll be getting a renter who genuinely wants to buy the home at the end of the lease, so they’ll take better care of the property. Finally, there may be some tax advantages to you if it takes more than a year for the lease option period to expire. Check with your tax advisor for more details on that.
Flipping Houses
A third method requires a greater knowledge of home prices and repair/upgrade costs, but it can make you a considerable amount of money without having to do any repairs yourself. That method involves finding properties and reselling them to other investors on an as-is basis. You won’t make as much money per transaction, since you’ll have to sell at a below-market price to the next investor, but depending upon your market and how good you are at finding bargains, you can flip those properties faster, since you won’t be doing any repairs or upgrades before you turn around and resell them.
Fixing and reselling homes has been an investment strategy for centuries, and will continue to be a popular investment option as long as folks still live in houses. You can get your piece of that pie if you shop hard, estimate carefully, and know your market!
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Categories: Flipping Real Estate Tags: Latter Situation, Money Investing, Retail Market
Seven Ways to Flip a Property
Flipping” is the buzzword of the year in real estate – flipping books, flipping articles in the newspaper, and even flipping shows on TV! What is flipping, how does it work and how you can profit?
Flipping simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.
Flip Strategy #1: Buy, Fix and Flip
Let’s start with the most common form – the good, old “fix ‘n flip”. This process involves buying a property that needs work, fixing it up, then selling on the “retail” market, that is, to a person who will live in the property. This method is tried and true, and works very well. You can easily make $15 – $50k on one deal, depending on your market and how good you are at finding bargains.
The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you include in your analysis the cost of paying a real estate agent to sell the property.
Flip Strategy #2: Buy, Refi & Lease/Option
Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a lease with option to buy. The rent payment from your tenant/buyer should cover your mortgage payment (if not, consider an interest-only or adjustable rate loan that is fixed for 3 years). When your tenant exercises his option to purchase, you reap a larger profit, since you don’t have to pay a broker’s fee. If the tenant exercises his option after 12 months, you benefit from a lower capital gains tax rate.
Flip Strategy #3: Buy & Flip “As Is”
Don’t like to do fix-up work? Consider selling the property “as is” as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market. This is especially the case with houses in “transitioning” neighborhoods. Make sure, of course, that you acquire the property sufficiently cheap enough that you can sell it below market quickly and still profit.
Flip Strategy #4: Wholesale
Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won’t make nearly as much as the rehabber, but you will realize your profit quickly.
Flip Strategy #5: Pre-Construction
In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete. If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true – you could end up losing money if the local economy tanks and you end up with a worthless condo that you can’t sell for more than you paid. Use this approach very carefully…
Flip Strategy #6: Scouting
The Scout is an information gatherer, so not technically a property flipper. He is the “bird dog” who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties. The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make five hundred to one thousand dollars each time he provides information that leads to a purchase by another investor.
Flip Strategy #7: Illegal Flipping
OK, I am not advocating this approach, because it is illegal. Illegal property-flipping schemes work as follows: unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices. In most cases, the investor, appraiser and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan. Since many of these loans are federally insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be illegal.
The fact is, “flipping” – as I described in the beginning of this article – is NOT illegal. Loan fraud in the process of flipping is what is illegal, so don’t confuse the two. The other six ways to flip are very legal, very ethical and very profitable!
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By: Attorney William Bronchick
About the Author:
Written exclusively for Legalwiz.com by Attorney William Bronchick, Certified Registered Nationally-known attorney, Author, Entrepreneur and Speaker.
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Categories: Flipping Real Estate Tags: Bargains, Flips, Retail Market