style="font-size:15px;"> ❯❯ Research the property. If you’re buying a property in foreclosure, probate, bankruptcy, or a similar situation, research the property carefully to make sure you know what you’re buying. Research includes a visit to the property and to the Register of Deeds office to research the title and other key documents. See Chapter 10 for details.
❯❯ Estimate costs of repairs and renovations. Knowing how much you’re probably going to need to spend to make the property market-ready is key to knowing how much you can afford to pay for the property and still earn a profit. In Chapter 11, I explain how to inspect a property with an eye for repairs and renovations and estimate your rehab costs.
❯❯ Calculate your maximum purchase price. Before you make an offer on a property, you need to calculate the most you can pay for it to earn the desired profit after costs, including closing costs, renovation expenses, holding costs, and agent commissions. In Chapter 12, I walk you through the calculations.
❯❯ Negotiate the price and terms in your favor. The maximum you can afford to pay for a property is probably not what you want to pay; you want to pay as little as possible. In Chapter 13, you discover various strategies and techniques to negotiate a better price and terms.
Making a few minor (or major) alterations
When you buy a house at a bargain-basement price, it usually requires some tender loving care to make it marketable. In some cases, a thorough cleaning, a fresh coat of paint (inside and out), and new carpeting do the trick. In a matter of days or a couple of weeks, and with a small investment, you can often boost the value of a home just by making it look brand-new again.
Other houses require more extensive renovations. You may be able to convert unused attic or porch space into a bedroom; knock out a wall or two to combine the kitchen, dining room, and living room into a great room; install new windows; or even build a second story. The chapters in Part 4 cover everything from quick-flip cosmetic jobs to extensive renovations and provide plenty of tips to stay on budget.
Reselling your rehabbed property
The old adage of house flipping is that “You make your money when you buy.” But you realize your profit only after selling the house. Assuming you purchase the property at the right price, avoid overspending on repairs and renovations, and flip in a relatively stable market, you should have no trouble selling the house at a profit simply by selling it at or near market value. (See Part 5 for details.)
In real estate circles, the word flip is often construed as just another four-letter word. Utter the “F word” at a real estate conference or seminar, and you’re likely to spend your lunch break at a cozy table for one. The reason for this cold shoulder from the real estate community is that way back in September 2001, the U.S. Department of Housing and Urban Development (HUD) released FR (Final Rule) -4615 Prohibition of Property Flipping, which made “flipping” illegal.
So, why am I writing a book that promotes this illegal activity? Because the word flip has a double meaning, as the following sections reveal.
Flipping illegally
Criminal minds have invented countless ways of milking the real estate industry, and one way is to flip houses. This sinister type of house flipping typically relies on some form of fraud – lying or misrepresenting information. In some cases, the con artists hook up with crooked appraisers who artificially inflate home values and then sell overpriced homes to ill-informed buyers.
Another way con artists scam the system through flipping is to build a team of buyers, none of whom intends to own the property for any length of time. They buy homes from one another, increasing the price with each sale. False appraisals or crooked appraisers make the price hikes look legitimate, and corrupt loan officers often expedite the loan-approval process. As the value of the property increases on paper, the amount of equity in the property increases. The final buyer takes out a whopping loan to pay the previous owner and then defaults on the loan. The team splits the proceeds, sticking the lender with the bill and leaving a legacy of foreclosures and vacancies.
Flipping legally: Buy, fix, and sell
Flipping the right way is a perfectly legitimate strategy for making money in real estate. You buy a property below market value, fix it up, and sell it for more than you invested in it. Do it well and you can earn a handsome profit. Make a serious blunder and you suffer a loss. This fix-it-and-flip-it approach has a positive effect on the real estate market. It increases property values, improves neighborhoods, and provides quality housing for those who need it. It’s the American way – capitalism at work.
Although anyone can profit from flipping houses, it’s not quite as easy as it looks on TV. Buying a house that’s brimming with potential for 20 percent to 50 percent less than you know you can sell it for is a huge challenge in itself, but after you take possession of the property, the real fun begins. Your contractor disappears after collecting your deposit. The landscapers hack through a buried cable. You find out that the septic system needs to be replaced. And the neighborhood association rejects every single one of your planned improvements.
❯❯ Time and energy: Flipping houses requires considerable time and energy for house shopping, lining up financing, scheduling and overseeing repairs and renovations, and more. If you already feel overwhelmed and overworked, maybe this flipping thing isn’t for you.
❯❯ Focus: Distractions can quickly derail a flip, so you’d better be able to focus in the midst of chaos, especially if you have a full-time
