Flipping - Four Basic Ways
Fix And Flip Course
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.
1. Buy Low And Sell Fast
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.)
2. Flip The Contract
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.
3. Fix And Flip - The Sweaty Way
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.
4. Fix And Flip - The Business Way
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.
Flipping - The Best Way
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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Real Estate Investing Course.
Tips For Flipping A House | Flipping
- Four Basic Ways |
