When a new subdivision is opening, ask to buy the model from the builder. The builder can then rent it from you for a few years. It’ll be well taken care of because it’s for showing to prospective purchasers.
Conditional clauses: Make sure that the purchase is conditional on the satisfactory completion of the building and on your ability to secure financing for the purchase. If you sign a purchase agreement and then are denied financing, the builder may keep your earnest money and perhaps even sue you for breach of contract.
Inflated profit estimates: Beware. You’ve probably heard stories of people who invested in a development and made $100,000 in short order. What you don’t hear are the stories of people who lose money, and those stories are much more common.
Variable building costs: Some contracts include language that allows builders to charge a variable amount — for the price of materials, for example. That variable amount could end up costing you double your investment (or more) if the cost of materials rises substantially, as it did during the COVID-19 pandemic.
If, after doing your research, you’re convinced of the benefits of investing in a new construction project, make sure you’re among the first 10 percent of buyers. These buyers make the lion’s share of the profit because, as construction proceeds, building costs rise. To find out whether you’d be in the first 10 percent group, ask the salesperson, who’s usually camped out in the model home, the number of total units planned and the number sold, and then divide the number sold by the total number of units planned.
Focus on a niche market
When you’re looking for properties to flip, the first impulse is to cast a wide net in the search for the best deals, but sometimes you can find better deals by fishing deeper in one spot, such as one of these:
Foreclosures: You can find more homes in foreclosure than you can possibly flip, and by focusing your efforts on these properties, you quickly discover the ins and outs of locating them and effectively negotiating the price and terms you want. See Chapter 7 for details about foreclosures.
VA foreclosures: To narrow your scope even further, consider focusing on Veterans Affairs (VA) foreclosures.
Probate: You can find leads from probate lawyers and the neighborhood grapevine to locate families who need to unload a house in order to settle an estate.
Divorces: When couples divorce, they’re often stuck with a home that neither of them can afford. By keeping your ears open and letting people know that you buy houses, you can often score first dibs on these homes.
HUD homes: Working with an agent who specializes in US Department of Housing and Urban Development (HUD) homes, you can build a career by purchasing these homes at a discount and rehabbing them for quick, profitable sales.
For Sale By Owner (FSBO): When everyone else is searching the MLS for deals, you may prefer driving around the neighborhood and looking for homes with a For Sale By Owner sign on the front lawn or searching for the ugly duckling on the street and then visiting your county’s register of deeds to see who owns it. The Multiple Listing Service (or MLS) is an organization that maintains a database of houses and other real estate for sale or rent all over the country.
Seized homes: Law enforcement agencies commonly seize property and then need to unload it. By focusing your energy in this area, you can corner the market on seized homes.
Teardowns: Homes that are beyond hope may still hold opportunities if the price and location are right. Some investors earn a sizable return by tearing down old homes and building new ones in their place.
Flip contracts (or do it all on paper)
Flipping contracts (sometimes called wholesaling) consists of locating a distressed property, contracting with the homeowner to buy the property, and then selling the contract to an investor who wants to flip the property. In essence, you earn a finder’s fee by serving as an investor’s bird dog, and you don’t even have to lift a hammer.
Here’s how it works: You pay the homeowner a deposit, typically $1,000 or 5 percent to 10 percent of the estimated purchase price. In return, you receive a purchase contract giving you the right to sell the property to an investor. You then find an investor who’s willing to purchase the property and pay you a fee in excess of the amount you have tied up in the property.
Cook up your own strategy
Successful investors, whether they invest in real estate or stocks, devise unique strategies based on their personalities, their abilities, and the resources they have at their disposal. If you like to help people and you’re good at dealing with uncomfortable situations, for example, you may want to focus on foreclosures or divorces. If you’re good at primping a house but not so good at rehabbing, consider focusing on homes that require only a little makeup.
You can even mix-and-match strategies to develop a custom strategy. You may, for example, choose to buy a quick flip in a hot market or buy only duplexes, move into one half, and rent out the other half while renovating the half you’re living in. The variations are limited only by your imagination.
Drawing Up a Detailed Plan in Advance
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