Property Investment For Profit: Flip or Flop

Flipping houses refers to an investor buying a property and selling it in a short amount of time for a profit.  A property can be flipped without making any repairs if it is bought at the right price or a property can be flipped after performing renovation to some extent.  Flipping can be a very profitable, but also very risky.

Keys To A successful Flip:


1. Know your market- This is crucial.  You have to know the value of your area.  Know what comparable properties have sold for, and the competition.  MLS is a great tool for market info.  Public record will have information on sold properties. Local newspapers will have some information, but it is not very extensive.  Talk to real estate agents who have been in the business for a while and get a feel from them about value.  Be sure that you have a full understanding of the condition of the comps.

2. Search for a bargain- There are many reasons why a property will be undersold, especially today with the flavor of the market rich in foreclosure.

• Auctions are a great way to acquire property cheap.  Local newspapers will advertise scheduled auctions.  You can also subscribe to auctioneers' website listings and the auctions will automatically be sent to you.  Companies such as  Hudson and Marshall have an online bidding process.  They deal  with a lot of REO (bank owned) property.  I have actually bought 2 houses from them myself.  One of them I acquired for 50% of the list price, the other about 75% of list.  Banks are willing to negotiate because they want to unload foreclosed property as quickly as possible.  They sell significantly under the value to get rid of it quick.  Often times they take a loss.  I love to purchase from banks because they are great with negotiation.  You can really get a good deal.

• MLS - Search keyword such as "handyman special", "developer", "investor", "needs work", "motivated seller".  These properties are not for just anyone and are more difficult as they may require special financing due to the condition.  Watch the "Days on Market" and check the number of price reductions.  These are keys to price negotiation.  The longer a property is on the market the lower the offers.  Multiple price reductions is always a clear indication of willingness to negotiate.  A desperate seller is the best kind of seller.  Some folks are pressured by a pending divorce, court orders, Town Health orders, etc. When a seller is under the gun, they will sometimes act irrationally and agree to a price that is much less than the value.  

• Contact the Owner - If you happen upon a property that looks abandoned and distressed, contact the owner and ask them if they would be willing to sell it, or, you may even be able to acquire the property for FREE!!!

• Realtors - Build relationships with real estate brokers.  They will often contact an investor as soon as a new listing is signed that meets the investor's criteria.  It is especially helpful to promise back the listing on the other side of the flip.  When it is completed let them resell it for you.

3. Run the Numbers - Then run them again and again.  Run them until you are sure that you have a good deal.  Be sure to include purchase price, fees, closing cost, liens to be paid, rehab expense, realtor commission and financing costs.  Subtract this figure from the anticipated sales price.  You will be "into" the property for X amount and you will sell for X amount, which leaves a profit of X amount.  Make sure that your profit is significant to make the deal worthwhile and be sure that you will be able to absorb unexpected costs and still come out on top.

4. Examine Financing Carefully -  Distressed properties are very difficult to finance conventionally.  Hard money is extremely expensive and the deadlines are tight.  It is easy to lose. and lose big. when dealing with loan sharks. Be careful.

5. Renovate for the Masses - Be true to the style of your house.  Keep your own taste out of it.  Remember you won't live there.  Use neutral colors.  Provide features that are in demand for your target buyers.  Be sure your work is quality.  Don't cut corners.  It will only come back to haunt you later.  Address issues that may arise at the Home Inspection.  Do not over-improve by installing items that are costly and won't pay back.  Be careful not to cut out any of your target buyers, like constructing a swimming pool in a family neighborhood.

6. Get in and out Quick - Time is money.  Get it done fast and move on to the next deal.  If you work all day, then don't try to do the work yourself at the project.  What you save here, you may loose there.

7. Don't be Greedy -  Your first offer may be your best offer.  Be careful about holding out for a better offer, when already have a good one.  Don't let your property sit on the market costing you money.  Price to sell.  Make your piece and get out.



Be realistic and Savvy.   Does your deal make sense?  Is it a no- brainer or will you be hoping for the best?  How long will it really take to get the property flipped?  How much will it really cost?  These are factors that will have a direct impact on profiting or losing on the deal.  If your unsure, then you had better consult with someone who knows.  Have a back-up exit strategy, just in case you are unable to sell your flip, have a plan to rent, move-in, re-finance etc.  If your too nervous or something doesn't seem right, then don't do it.  There will always be another good deal.  Savvy investors know when to pass and when to pounce.

woburn.  I received an award from the Historic Commission for this renovation.  http://www.wickedlocal.com/woburn/town_info/history/x1300270458