With the A&E Channel hosting a weekly one-hour show called Flip This House, it is little surprise that everyone thinks that they can delve into real estate investing -- or flipping -- and turn a quick profit. Doing so is not entirely impossible; you, too, can succeed -- especially if you do much of the legwork on your own to reduce costs. Apart from the obvious financial rewards you can reap by buying low and selling high, you can also take away a great sense of satisfaction from creating wealth with your own bare hands. Here is an overview of what you can do to successfully and safely flip a house.
Get educated
The real estate experts on Flip This House emphasize the importance of knowledge when flipping a piece of real estate. I know that it’s cliché to say that “knowledge is power,” but it is surprising how many people will venture into an investment situation without the proper knowledge and guidance.Your first step, as with anything that involves your money, should be to understand what you are getting into. When you decide to flip a house, you will not only need to know how to buy a house and what is involved, but many other intangible things as well. Some of these peripheral items include fair prices on things like tile, carpet and landscaping expenses -- so you know when you are getting a good deal. You also need to have a good grasp on negotiating deals, financing, networking, insight into particular neighborhoods, and much more. Nathanial “Than” Merrill from Flip This House agrees and suggests that you leverage the knowledge of others: “Find someone who is successful in the real estate business and model what they do. Imitate then innovate.”
Take stock of your finances
It takes money to make money. Mortgage, interest, taxes, insurance, and maintenance will consume cash -- and likely more than you can collect from any rent. In most cases you’ll borrow the money, but you will usually need a down payment and you’ll have to start servicing the debt right away, all while you are fixing the place up for a flip. Simply put, make sure you have some cash on hand to keep the “flip this house” project moving.Furthermore, you cannot be fearful of debt when attempting to flip a house. Unless you have a stockpile of cash in your checking account, you will need to take out loans to purchase the house and improve the place. If you get out of your comfort zone and cannot handle monthly payments for the project, then you may want to rethink your business.
Lastly, you must consider the downside when it comes to the finances involved in flipping a house. Bob Parsons, founder of the immensely successful GoDaddy.com, says to “make it a point to quantify what the worst thing could be.” Ask yourself tough questions such as: “What if I cannot sell the house for my desired price?” or “How much can I lose in this deal?” Realize that there are risks involved and define what the situation will be if it takes nine months to flip a house instead your projected three.
Start the search
Once you have armed yourself with real estate knowledge and have quantified the financial picture and risks, you will be ready to find your first project to flip.Merrill says that “marketing to find good real estate deals is the most important part of the business.” Get creative in your search strategy -- you can send out post cards to help build a network of referrals. The deals are not just going to fall out of the sky and it will likely take a more proactive effort than reading the local real estate listings in the classified section. You also have to understand how competitive the landscape is and that there are many other flippers looking for good deals. A good way to avoid much of the competition is to become an expert in a particular neighborhood and literally go door to door to make offers on targeted properties. The worst someone can say is no, and perhaps someone you talk to will accept your first offer and you will then have found a place that was seemingly unavailable.
You also want to look for hidden value. Rather than focusing on a house that is in need of being repaired before it can be flipped, maybe you can find a house in great condition that has horrible landscaping. Angela Wilford (Flip This House) places major flipping emphasis on inexpensive landscaping -- compared to, say, a new roof. Adding quick and cheap landscaping to a home can increase your returns by 100% to 150%.
Name your price
“Every battle is won before it is fought” is a famous quote from The Art of War by Sun Tzu.Initially, know what you are willing to pay for a house and what you are looking for in terms of profit, after expenses such as interest and repairs. Wilford says that “the way to make the best profit on any real estate deal is on your way into the deal. If the seller won't sell at the price you need for your desired profit, walk away.” It is easy to give into greed or fear when it comes to real estate. You may really feel that a house has flip potential, but if you cannot get the price you are aiming for, you may end up overpaying because you are convinced it’s a sure thing.
The deal is nothing more than a numbers game and putting yourself in the best situation to buy low and sell high to hit your profit goals. Put definitive numbers on the purchase price, the selling price and improvement cost to spare yourself a great deal of stress and subsequent financial pain. Granted, nothing ever goes exactly according to plan and you should be prepared for the unexpected, but control as much as you possibly can. For instance, in addition to finding homes to buy, you’ll have to simultaneously market them to potential buyers that are willing to purchase your flipped homes. This way, you may be able to have a definitive buyer for your project before it even starts.
Fix it and flip it
This is the easiest part of the process if you have done your homework. Renovating a house and improving its appearance is a lot of hard work. From shopping for the best-priced materials -- whether it’s carpet, roofing tiles or plants -- you should be prepared to spend many hours not only acquiring the stuff, but putting it into action. The more you can do yourself, the better your return will be.Needless to say, you should not expect to be an expert handyman. So, get help where you need it to avoid costly delays and mistakes. A critical part of success is quickly moving your inventory once it is ready to go on the market. If you have a definitive buyer today, it may not make sense to chase a 10% higher price you might be able to get if you put a little more sweat equity into the project.
To keep things moving forward, you may want to consider forming specialized teams to run various aspects of the project -- from landscaping to construction and management. Once the house is flipped and if they’re open to the idea, you can split the profits. This approach, like that seen on Flip This House, will give you more time to find deals and ensure that expert attention is given at each checkpoint. Once you have completed your improvements, find your buyer. If you are lucky enough to have networked properly and have a buyer lined up, then this part should be easy. But, if that is not the case, rely on good old-fashioned marketing, networking and hustling to find a buyer -- they are out there.
flip that house
Amidst the glamorous television shows and the emergence of many real estate experts purchasing and flipping homes, the reality is that it’s easier said than done. According to Realty Trac Inc., foreclosures in the U.S. are up 47% from 2006 and in some states, like Nevada, where the real estate market has been especially hot, the foreclosure rate is over 200%. Many of these foreclosures can be attributed to flippers aiming for high profits, but being unable to find a buyer when the market went bust. Regardless, in the face of all of the negative press surrounding the real estate market, flipping real estate can be done successfully.Resources:
http://www.aetv.com/flipthishouse/flip2_fliptips.jsp
http://www.msnbc.msn.com/id/18335054/
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