cards to hand out to everyone you meet, so if someone needs to sell a home in a hurry, they call you first.
Of course, if you’re planning to do some or all of the repairs and renovations yourself, you also need a garage full of hand tools, power tools, and lawn and garden equipment.
Chapter 3
Devising an Effective Flipping Strategy
IN THIS CHAPTER
❯❯ Exploring a variety of flipping strategies
❯❯ Plotting your course well in advance
❯❯ Formulating a backup plan
Before making an offer on a house, know how you’re going to profit from it. Are you going to buy it at a bargain and resell it immediately at market value (or for less to sell it faster), do a quick makeup job and resell it, perform some major renovations, or fix it up and use it as a rental? Each of these strategies has benefits and drawbacks, but each strategy is a perfectly legitimate way to flip property for a profit.
This chapter explores several house flipping strategies and encourages you to develop your own strategy based on your neighborhood, the resources you have at your disposal, and your preferred approach.
When developing a game plan, you want to maximize your strengths, minimize your weaknesses, and fully exploit the opportunities that surround you. Many flippers have already developed their own strategies that achieve those three goals. By becoming more aware of these existing strategies, you can choose the one that fits you best and perhaps even improvise to develop your own unique strategy.
In the following sections I reveal house flipping strategies that many flippers practice with varying levels of success.
Buy into a hot market
In a sizzling real estate market, you can turn a profit fairly quickly by buying a house, moving in, and then sitting back and watching the real estate values soar. This approach works only if you have time on your hands, are speculative by nature, and have a knack for purchasing houses in a hot market at just the right time. This strategy offers several benefits:
❯❯ If the market remains strong, your property value rises without your having to lift a finger.
❯❯ Your equity in the property rises, boosting your borrowing power for other investments.
❯❯ By living in the home for two years or more, up to $250,000 of your profit ($500,000 for a couple filing jointly) may be tax free, at least according to the tax laws in place when I was writing this book. See Chapter 23 for more tax-saving tips.
❯❯ Where property values are soaring, the housing bubble may burst, leaving you with a home that’s worth less than what you paid for it.
❯❯ Stuff happens. You can have a great house at a great price in a hot market with the top agent working to sell it, and the house still may not sell. Prepare yourself for all contingencies.
Chapter 6 has more details on taking the temperature of the real estate market in any neighborhood you’re scoping out.
Buy low, do nothing, and sell quick
Occasionally, you stumble on a house that’s priced significantly below market value and requires few or no repairs. The property may be in foreclosure or perhaps is part of an estate that’s being liquidated, making the owner very motivated to sell. By being at the right place at the right time with ready cash and a solid plan in place, you can pounce on the deal and then put the house back on the market the very same day!
Sounds great, huh? Well, getting a house that’s way below market value is great when it happens, but being in the right place at the right time takes time and effort. You need to build a solid team (see Chapter 4 for details), do plenty of research, secure some solid investment capital (see Chapter 5 for tips on financing your flip), and be properly equipped to execute this strategy.
Buy low, apply makeup, and sell quick
You can learn a lot from used-car salesmen. The first thing they do when they take possession of a vehicle is clean and polish it and vacuum and deodorize the interior. Looking and smelling its best, that used car can sell for a handsome profit.
Even a good home, if not clean and well maintained, can look disheveled and smell stale. Many homeowners place their homes on the market without proper staging (showcasing). They don’t mow the lawn, trim the bushes, touch up the paint, or even tidy up the house during showings. Unknowingly, they turn away prospective buyers and lower the profit potential of their property.
This kind of home gives you a perfect opportunity to swoop in and get a great deal. You buy the home for significantly less than market value, add elbow grease, and then resell the home for thousands of dollars more than you invested in it. In Chapter 21, I show you how to properly market and stage a home to get top dollar.
Buy low, renovate, and sell high
Some homes are undervalued because they’re missing an essential feature – a livable living room, a third bedroom, a deck, or a laundry room on the main floor. Other homes may have major eyesores, such as an outdated kitchen or bathroom. In either case, moderate to major renovations may improve the marketability of the house and its profit potential in two ways:
❯❯ Increase the home’s actual value. Wear and tear depreciate a home over time. Updates restore value, while added living space can boost the house into a higher price bracket.
❯❯ Expand the pool of interested house hunters. A two-bedroom house, for example, appeals only to people who are looking for a one- to two-bedroom house. Adding a third
