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Flipping means different things to different investors. The general meaning may be to quickly buy and sell a house or other real estate for a profit, but there are four basic ways to do this. You will probably find that it is best to specialize in one of these, or start with one and then try the others. Here they are.
Basic flipping is simply buying low and selling fast. Repairs and improvements are secondary, if done at all. You don't add much value to the property, instead making your profit by buying below market. Since you may rely on the ignorance of sellers for that, this kind of "investing" isn't always appreciated by people.
It is also difficult. Transaction costs of buying and selling can eat up 10% of the final sales price, so you have to really buy cheap. Alternately, you can buy for cash and sell on easy terms, thus adding value by making the property "affordable." Buyers will pay a higher price, so you don't have to squeeze the seller so much to make a profit. But you do need a lot of capital or some sophisticated financing techniques .
(Note: some types of real estate flipping are legislated against in some areas, so be sure that what you are doing is legal where you are. No legal advice is offered here - talk to an attorney.)
This is a favorite way of flipping real estate when prices are rising fast. You make an offer, then sell your position to another investor. For example, if a home has a potential $30,000 profit after repairs, you pass on the contract to another investor for $5,000. He does the repairs and makes $25,000. You risk nothing (if done right). This is a way to get started when you have no cash to invest, and I'll cover this in a later lesson.
This is what most people think of when contemplating a fixer upper investment. You buy a run-down home cheap, and then you get to work painting, repairing and burning up every hour you're not at your regular job. If all goes well, you make a $20,000 profit a few months later when it is finished and sells.
This makes sense for a first time investment in a fixer upper. You get experience in the real costs of doing things, as well as in the process involved. You might also reduce your risk by using your own labor. For example, suppose you end up making only $6,000. You might have lost money had you paid out $10,000 in additional labor costs.
Of course, if you only made $6,000, you may have netted just $9 per hour for your time. That's a job, not an investment. It will be difficult to make any big money operating this way. So after you get some experience, you may want to consider the BUSINESS of fixing and flipping real estate.
I had a friend who was flipping houses regularly years ago. He bought and sold fourteen houses one year, and he never lifted a hammer or paintbrush. Obviously you can't do your own work and complete more than a dozen houses in a year. That is why the BUSINESS of flipping real estate isn't about your labor. It's about thinking and planning and having good help.
This friend probably made less per house, on average, than some of the people who were fixing up their investment houses on their own. But you can be sure that he made more money on those 14 houses than they made on their two or three per year. He had a good team of contractors and others that were always busy doing the renovation and repairs, while he was busy finding the next deal.
In the coming lessons, I'll have more about each of the above. Contrary to what many investors believe, there is no "best" way for everyone. If you strengths are in finding the deals, you might do best flipping the contract. If you know how to do every repair and improvement, you might make enough money and be more satisfied doing your own work on fixer uppers. If you are a natural team leader, you might have people doing almost everything for you, so you can do many more deals.
As I said at the start of this lesson, you'll probably do best if you specialize in a one or two types of investments. Give it some thought as you read the coming lessons. Then get out there and start flipping that real estate.
Steve
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