| Flipping" is the buzzword of the year in real | | | | property cheap and sell it for just a few |
| estate - flipping books, flipping articles in | | | | thousand dollars more to another investor |
| the newspaper, and even flipping shows on TV! | | | | without doing any work. You won't make nearly |
| What is flipping, how does it work and how | | | | as much as the rehabber, but you will realize |
| you can profit? | | | | your profit quickly. |
| | | | |
| Flipping simply means buying a property and | | | | Flip Strategy #5: Pre-Construction |
| reselling it quickly, as opposed to holding | | | | |
| on to a property long term as a rental. | | | | In very hot real estate markets, prices are |
| Flipping comes in several varieties, most of | | | | appreciating as much as 2% per month. If you |
| which are legal and profitable, some of which | | | | time things right, you can put a contract on |
| are not. | | | | a pre-construction house or condominium, then |
| | | | flip it to someone else when the development |
| Flip Strategy #1: Buy, Fix and Flip | | | | is complete. If it takes 12 months for the |
| | | | development to be complete, and the condo |
| Let's start with the most common form - the | | | | price is $500,000, you could make $100,000 or |
| good, old "fix 'n flip". This process | | | | more in one year! Of course, the opposite is |
| involves buying a property that needs work, | | | | also true - you could end up losing money if |
| fixing it up, then selling on the "retail" | | | | the local economy tanks and you end up with a |
| market, that is, to a person who will live in | | | | worthless condo that you can't sell for more |
| the property. This method is tried and true, | | | | than you paid. Use this approach very |
| and works very well. You can easily make $15 | | | | carefully... |
| - $50k on one deal, depending on your market | | | | |
| and how good you are at finding bargains. | | | | Flip Strategy #6: Scouting |
| | | | |
| The danger in fix and flips is either paying | | | | The Scout is an information gatherer, so not |
| too much or underestimating repairs. Be very | | | | technically a property flipper. He is the |
| conservative in your fix-up costs and length | | | | "bird dog" who finds potential deals and |
| of time it may take to resell. Also, make | | | | sells the information to other investors. |
| sure you include in your analysis the cost of | | | | Many people get started as a Scout for other |
| paying a real estate agent to sell the | | | | investors because it does not take any cash |
| property. | | | | or prior knowledge to look for distressed |
| | | | properties. The Scout finds a property for |
| Flip Strategy #2: Buy, Refi & Lease/Option | | | | sale, gathers the necessary information, and |
| | | | then provides this information to investors |
| Rather than sell the fixed up property for | | | | for a fee. The fee will vary depending on the |
| all cash, sell for terms. Once you have | | | | price of the property and the profit |
| completed the rehab, refinance the property | | | | potential. The Scout can expect to make five |
| at its new appraised value. If you did the | | | | hundred to one thousand dollars each time he |
| math correctly, you should have little or no | | | | provides information that leads to a purchase |
| money in the deal. Sell the property on a | | | | by another investor. |
| lease with option to buy. The rent payment | | | | |
| from your tenant/buyer should cover your | | | | Flip Strategy #7: Illegal Flipping |
| mortgage payment (if not, consider an | | | | |
| interest-only or adjustable rate loan that is | | | | OK, I am not advocating this approach, |
| fixed for 3 years). When your tenant | | | | because it is illegal. Illegal |
| exercises his option to purchase, you reap a | | | | property-flipping schemes work as follows: |
| larger profit, since you don't have to pay a | | | | unscrupulous investors buy cheap, run-down |
| broker's fee. If the tenant exercises his | | | | properties in mostly low-income |
| option after 12 months, you benefit from a | | | | neighborhoods. They do shoddy renovations to |
| lower capital gains tax rate. | | | | the properties and sell them to |
| | | | unsophisticated buyers at inflated prices. In |
| Flip Strategy #3: Buy & Flip "As Is" | | | | most cases, the investor, appraiser and |
| | | | mortgage broker conspire by submitting |
| Don't like to do fix-up work? Consider | | | | fraudulent loan documents and a bogus |
| selling the property "as is" as a light fixer | | | | appraisal. The end result is a buyer that |
| upper. If the local real estate market is | | | | paid too much for a house and cannot afford |
| hot, you should be able to sell the property | | | | the loan. Since many of these loans are |
| in poor condition just a little below market. | | | | federally insured, the government authorities |
| This is especially the case with houses in | | | | have investigated this practice and arrested |
| "transitioning" neighborhoods. Make sure, of | | | | many of the parties involved. As a result, |
| course, that you acquire the property | | | | the public perceives is flipping to be |
| sufficiently cheap enough that you can sell | | | | illegal. |
| it below market quickly and still profit. | | | | |
| | | | The fact is, "flipping" - as I described in |
| Flip Strategy #4: Wholesale | | | | the beginning of this article - is NOT |
| | | | illegal. Loan fraud in the process of |
| Strategy #1, the fix and flip, is very | | | | flipping is what is illegal, so don't confuse |
| popular, which means there are a lot of | | | | the two. The other six ways to flip are very |
| investors looking for rehabs. You can buy the | | | | legal, very ethical and very profitable! |