How to Flip a Property
Flipping has become a common buzzword in real estate. What is flipping? Flipping means purchasing a property and then reselling it fast, rather than holding on to the property as a rental. There are different kinds of flipping, many of which are profitable and legal, while some are not.
Buy, Fix and Flip
This process involves purchasing a property which needs repair, fixing it up, and then selling it to someone who will reside in the property. This is a method which has proved to be very effective. You can easily earn up to $50k in a single deal, depending on the state of your market. The problem with fix and flips is that you might end up underestimating repairs and paying too much. You need to estimate your fix up costs wisely. In addition, be sure to include the real estate agent fees in the price of the property.
Buy, Refinance and Lease
Instead of selling the fixed property for cash, sell it for terms. When the rehab is complete, refinance the property at the new value. You will find that you don’t have much money from the deal. Next, sell the property on lease, with the option to buy. Your tenant’s rent payment should adequately cover your mortgage payment. If your tenant goes for the option to purchase, you will earn a bigger profit because you won’t need to pay a broker’s fee.
Buy and Flip “As Is”
If you don’t like doing fix up work on the property, you could consider selling “as is”. If the market is hot, you will be able to sell off the property in its poor condition at rate slightly lower than the market rate. This is especially true with homes in ‘transitioning’ neighborhoods. To make a profit, be sure to purchase the property cheaply enough.
Wholesale
There are usually many investors looking for rehab properties. You could purchase the property cheaply and then sell it sell it off at a higher price without fixing anything. You might not make as much profit as the rehabber. However, you will make your profit fast.
Scouting
A scout is not really a property flipper, but a gatherer of information. He is the one who looks for potential deals and then sells off the information. Usually, many people start as scouts for other investors since it doesn’t take any previous experience or cash. The scout locates a property for sale, collects the important details, and then sells this information to investors. The fee charged varies depending on the property’s price and its profit potential. Every time a scout offers information which leads to a property purchase, he could make up to one thousand dollars.
Illegal Flipping
This approach is illegal, and therefore not advisable. In illegal property flipping, corrupt investors purchase run-down, cheap properties mainly in low-income areas. They then do shoddy renovations and sell the properties to unsuspecting buyers at exaggerated prices. In many cases, the appraiser, mortgage broker and investor conspire to submit a bogus appraisal and fake loan documents. Illegal flipping has made man people to perceive flipping as illegal.
Stephan is a freelance writer, who often writes about wholesale homes and wholesale property.
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