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What to Know Before Flipping

David Reinholtz
 


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Flipping. The word alone can cause anyone involved in the real estate market to cringe. What had once been one of the key boons to the industry, and one of our greatest allies, has become a term that many want to disassociate from, at least in the public view. People have come to the conclusion, through media coverage and discussions about why the industry is in the shape that it's in, that flipping houses and those who flipped were a big reason for the tough economic environment we face today.

While this is unfair assessment, one cannot alter public perception with a simple wave of the hand. Yet flipping is still alive and well, though not openly advertised, as it was before. Look to any number of short sales and then follow the home ownership of those homes several months down the road. People are still flipping and making money flipping houses, and as new people dive into the practice, there are some pointers that you can share with them to help them maximize their profits (and drive some business your way).

Money is made in the purchase, not the sale

Many people buy short sale or bank owned homes, invest some money on fixing it up, then selling it only to find that what they make on the deal wasn't what they planned. In some cases -more often than need be- these individuals actually end up losing money. The reason is not in price they sell the house for, but in the price they paid for it.

The money in flipping a home is made at the purchase. If they pay too much for a home, then odds are that they are not going to get that money back. The market is not rebounding as many industry experts had predicted and now those same experts (as well as many others) are not expecting any real, measurable rebound for at least another year, perhaps two. Or more.

Buyer beware: when planning on flipping a home, take into consideration how much you plan to invest in repairs or remodeling and how much the market will allow you to sell the home in its renovated condition. Then, determine how much you want to earn for the flip and then make sure that you don't pay too much for the house up front because that's where the money is really made.

Don't do the work yourself

You may be handy, you may be gifted at electrical or plumbing, but you aren't going to be as fast as a professional contractor. In order to make money flipping, you need to turn over the home as quickly as possible. Besides, any electrical or plumbing work needs to be done by certified professionals, and your inspection will notice shoddy or improper work that doesn't live up to code and you will end up having to do it all over again.

Set your selling price 1 to 2 percent below market value

Remember, the money of a flipped house is made on the purchase, not the sell. It is also made on how fast you can flip the home. If you buy in May and don't sell until the following January, then you've been paying on that home for seven months. If, on the other hand, you sell in August, or July (even better), then you can end up flipping two or three more houses in that time before January, meaning you will make two to three times more money in your flipping enterprise.

Right now there are countless bank owned and short sale homes available that make flippers drool. If they know the keys to making money at it, then they will continue to do business. If you're the one that helps them maximize their investment, then they'll be coming to you every single time.

Not a bad business model, is it?

David

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