Friday, September 29, 2006
"Flipping" is the buzzword of the year in real estate - flipping books, flipping articles in the newspaper, and also 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 rapidly, as opposed to holding on to a property long term as a rental. Flipping comes in some varieties, most of which are legal and very profitable, some of which are not.
Buy, Fix and Flip
Let's start with the most frequent form - the good, old "fix 'n flip". This procedure involves buying a property that needs work, fixing it up, then selling on the "retail" market, that is, to a person who would live in the property. This method is tried and true, and works very well. You could easily make $20 - $50k on one deal, depending on your market and how good you are at bargains.
The danger in fix and flips is moreover paying too much or underestimating repairs. Be very traditional in your fix-up costs and length of time it might take to resell. Also, make certain you comprise in your analysis the cost of paying a real estate broker to sell the property.
Buy, Refi & Lease/Option
Rather than sell the preset up property for all cash, sell for terms. Once you have finished the rehab, refinance the property at its new evaluated value. If you did the arithmetic correctly, you must have little or no money in the deal. Sell the property on a lease with alternative to buy. The rent payment from your tenant/buyer must cover your mortgage payment (if not, believe an interest-only or adjustable rate loan that is fixed for 3 years). When your occupant exercises his option to buy, you harvest a larger profit, since you don't have to disburse a broker's fee. If the tenant exercises his alternative after 12 months, you benefit from a lower capital gains tax rate.
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.
Wholesale
Fix and flip, is very well-liked, which means there are a lot of investors looking for rehabs. You could buy the possessions cheap and sell it for just a few thousand dollars more to one more investor without doing any work. You would not make nearly as much as the rehabber, but you would realize your profit quickly.
Scouting
The Scout is an information gatherer, so not theoretically a property flipper. He is the "bird dog" who finds possible deals and sells the information to other investors. Many people get in progress as a Scout for other investors because it does not take any cash or any prior knowledge to look for distressed properties. The Scout finds a property for sale, gathers the essential information, and then provides this information to investors for a fee. The fee would differ depending on the price of the property and the profit potential. The Scout could expect to make five hundred to one thousand dollars each time he gives information that leads to a buy by another investor.
Illegal Flipping
Illegal property-flipping system work as follows: Unscrupulous investors purchase cheap, run-down properties in typically low-income neighborhoods. They do careless renovations to the properties and sell them to simple buyers at exaggerated prices. In most cases, the investor, evaluator and mortgage broker scheme by submitting falsified loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot pay for the loan. Since many of these loans are federally insured, the government system have examined this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be prohibited.
Flipping simply means buying a property and reselling it rapidly, as opposed to holding on to a property long term as a rental. Flipping comes in some varieties, most of which are legal and very profitable, some of which are not.
Buy, Fix and Flip
Let's start with the most frequent form - the good, old "fix 'n flip". This procedure involves buying a property that needs work, fixing it up, then selling on the "retail" market, that is, to a person who would live in the property. This method is tried and true, and works very well. You could easily make $20 - $50k on one deal, depending on your market and how good you are at bargains.
The danger in fix and flips is moreover paying too much or underestimating repairs. Be very traditional in your fix-up costs and length of time it might take to resell. Also, make certain you comprise in your analysis the cost of paying a real estate broker to sell the property.
Buy, Refi & Lease/Option
Rather than sell the preset up property for all cash, sell for terms. Once you have finished the rehab, refinance the property at its new evaluated value. If you did the arithmetic correctly, you must have little or no money in the deal. Sell the property on a lease with alternative to buy. The rent payment from your tenant/buyer must cover your mortgage payment (if not, believe an interest-only or adjustable rate loan that is fixed for 3 years). When your occupant exercises his option to buy, you harvest a larger profit, since you don't have to disburse a broker's fee. If the tenant exercises his alternative after 12 months, you benefit from a lower capital gains tax rate.
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.
Wholesale
Fix and flip, is very well-liked, which means there are a lot of investors looking for rehabs. You could buy the possessions cheap and sell it for just a few thousand dollars more to one more investor without doing any work. You would not make nearly as much as the rehabber, but you would realize your profit quickly.
Scouting
The Scout is an information gatherer, so not theoretically a property flipper. He is the "bird dog" who finds possible deals and sells the information to other investors. Many people get in progress as a Scout for other investors because it does not take any cash or any prior knowledge to look for distressed properties. The Scout finds a property for sale, gathers the essential information, and then provides this information to investors for a fee. The fee would differ depending on the price of the property and the profit potential. The Scout could expect to make five hundred to one thousand dollars each time he gives information that leads to a buy by another investor.
Illegal Flipping
Illegal property-flipping system work as follows: Unscrupulous investors purchase cheap, run-down properties in typically low-income neighborhoods. They do careless renovations to the properties and sell them to simple buyers at exaggerated prices. In most cases, the investor, evaluator and mortgage broker scheme by submitting falsified loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot pay for the loan. Since many of these loans are federally insured, the government system have examined this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be prohibited.
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