Flipping Real Estate Without Cash
Fix and Flip Course
Flipping real estate without cash of your own is usually done
by simply flipping the contract, which is mentioned in Lesson
One. Your risk is low - almost non-existent if you do it right
- and you can make good profits with a small investment, which
could come from a credit card advance or loan if you really have
no cash at all. You pass up the opportunity to make more money
by fixing and selling the house yourself, but you pass on the
problem associated with that too.
We're talking about classic flipping real estate without ever
owning it here. your job as an investor in this scenario is to
find properties with good profit potential, get an offer accepted,
and then sell your "position" to another investor,
who will actually close on the property, fix it up and sell it.
There is an example further down, but first lets look at what
you need to make money this way.
The ability to recognize a deal.
You'll be looking at a lot of homes and making a lot of offers
to get this strategy to work. It goes a lot faster if you can
look at a home and say, "It should sell for around x amount
once it's ready." Of course, then you'll do research to
arrive at a more accurate estimate, but having an eye for value
is what will help you focus quickly on the properties that will
make money. If you don't have some idea what homes will sell
for, you can waste a lot of time.
The ability to estimate expenses.
You can also waste a lot of time if you don't know roughly
what common repairs and improvements will cost. Suppose you guess
$3,000 for a roof repair and then get a quote for $11,000. This
could mean a backing out of deal - after spending days working
on it. Carry a list of prices for common improvements, like the
square-foot cost of carpet installation, painting and tile work.
Take notes as you lean more.
Good contacts with fixer-upper investors.
As soon as you have an offer accepted, you should be able
to get on the phone with some investors who might be interested.
Your accepted offer is a signed contract with deadlines in it,
so this is not the time to start introducing yourself to possible
investors. Join a real estate investors club to meet those who
want to do fix and flip projects.
An assignment clause in your offer.
The usual way is to put "or assigns," or alternately
"or my assigns" after your name in every offer you
make, but speak with an attorney or experienced investor to see
what language is common where you are. This is what gives you
the right to assign the contract to another investor. Sellers
will ask about this, of course. Tell them the truth - that you
may bring in a partner to help, or turn the project over to your
"partner," but all the same terms apply. There really
is nothing for the seller to worry about if you have done your
homework and have investors who can close on the deal.
Escape clauses in your offer.
What if you can't find an investor to assign the contract
to? You have to complete the transaction yourself, unless you
give yourself a way out. That's what an escape clause does. For
example, you could make the deal contingent on getting the approval
of your partner within six days. No approval - no deal, and you
get your earnest money back.
Flipping Real Estate Without Cash - An Example
Lets suppose you've met a few investors who invest in fixer-uppers.
After talking with them a few times, you know what kind of properties
they like, and how much profit they expect. You have educated
yourself on home prices and repair costs, so you start looking
for houses that meet your criteria.
After a day of driving around, you locate four fixer uppers
for sale through realtors, two for sale by owner, and several
houses that appear abandoned. You take notes, of course, and
you go to the courthouse to find the owners of the abandoned
houses. Later you start making phone calls, talking to owners
and real estate agents.
You arrange to visit any of the properties that you can the
next day. As you go through each, you take notes and photos,
then later make a plan and estimate the costs of repairs and
improvements. From your best estimate of the eventual sales price
(get help if needed) you subtract all the costs (including costs
of buying, selling and holding) and the profit you need for yourself
and the final investor. You now have the highest price you can
offer on the house.
After making an offer on several houses, one is accepted.
It is on a house that will be worth about $170,000 when it is
done. Total expenses will run about $20,000. The buyer accepted
your offer of $119,000, leaving a potential profit of $31,000.
Your offer includes a good faith deposit (earnest money) of $1,000
(use a credit card cash advance if necessary), and you included
an assignment clause.
As soon as the seller signed the agreement, you got on the
phone. One of your investors agrees with your assessment of the
profit potential, thanks to your written plan showing the repairs
and improvements, as well as your market analysis showing what
similar homes have recently sold for (notice that there is some
serious homework to do if you want this to work). He won't do
a deal for less than $20,000 to $25,000 profit, so you offer
to assign him the contract for $10,000. He counter-offers with
$7,500 and you agree.
Of course it can get more complicated than this at times.
Also, most investors will want to pay you only after the purchase
closes, so you might have to wait a month. But notice that in
the example you invested $500 and a few days work to make $7,500.
Flipping real estate this way can be well worth your time. What
if the deal falls through? Pay the $40 in interest and fees for
that credit card cash advance, and start again.
A quick review of the advantages of this strategy: Low risk,
low investment, high return and less complicated (compared with
fixing and selling a house). You can see why some investors concentrate
on flipping real estate in this way.
Steve
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Tips For Flipping A House | Flipping
Real Estate Without Cash |
