Buying Foreclosures the Flip Houses Guide

Words of Wisdom on Flipping

Flipping houses is a great way to generate cash when done properly. You don’t have to be rich, and you don’t have to be a carpenter. To be a successful flipper the most important tools is to know your market, be able to recognize the right house to buy, put together a budget quickly and accurately, plan for the best and worse case and have resources.

Money and Flipping

There are so many ways to come up with money to flip a home. The most expensive is using Hard Money lenders. You will pay a very high interest rate around 15% and your charged a fee of around 5% which can either be paid up front or at time of sale. Your also faced with a time line of 6 months which can sometimes be extended. There is generally no credit check, no income verification. The lender will look to see if you have a sound plan, budget and expectations however.

There are conventional mortgages, interest only and construction loans all of which can come into play when financing. Since I am not the financial wizard on flipping I won’t write any further on this area, however I will point out that you must in all cases calculate your carrying costs (interest, mortgage payments) into your budget and expect to hold the house longer than you planned.

Skills – Plumber, Carpenter or Lawyer

You don’t have to be handy. Yes it is nice to have a particular talent whether it is carpentry, hanging doors, landscaping or just tiling because these are all items that you can save money on by doing them yourself. But fear not…..there are people who can do all of this for you. Seek out resources. Talk to your Realtor for the handyman that they use, the kitchen cabinet guy who has prices that are unbeatable. Work up a budget using these resources and keep building that resource list. In time you will have a skilled worker for every issue that can come up in a home at affordable prices. The better you get with the resources the more profit you will see from your flips. Your resources should also include your realtors and lenders.

Recognizing the Right House

The right house is not necessarily the worst house. In every project there is the cost/time/budget calculation you must perform. The worst house carries the most potential unexpected costs. Recognize just how far a renovation actually has to go on a home. For example: You find a house which is very under priced for the market or is subject to a foreclosure. When you enter the house you see a home that was obviously loved buy its owners. Pink and Blue tiles in the bathroom but they look like they did when the house was new. Notty pine cabinets. Good hardwood floors and of course a few shocking wallpaper choices. Lets say this house if purchased puts you at 40% below market if it were renovated. What happens if we paint the cabinets, change the counter, refinish or even carpet the floors with a new neutral carpet, paint the entire house and change the vinyl flooring in the kitchen. We identify all of the great selling points, schools, yard, new furnace, roof 5 years old. The house can be moved into today because it is clean, fresh and ready to go regardless of it out of date features. You’ve dropped a $2500 into the house and now you can list it still below market and appeal the first timers and flippers. You on the other hand might generate a quick sale and a decent profit and no longer is your time and money tied up.

Recognize when the house should get high end kitchens and baths and when the house should get standard kitchens and baths. Remember you can’t turn a $130,000 three bedroom, 1 bath home into a $260,000 or million dollar home. Learn to recognize what it is you have.

Above all don’t be too ambisions or greedy with your pricing. For every dime you spend you must see a return either in the ease to sell which generates a time savings or in actual return on dollars. Example: You can turn a house into a wonderful home and your market research tells you that like homes in like condition are listed for $280,000. Your entire costs ended up being $165,000. Well my advised to you is price it below market. $265,000 and take the quick sale and move onto the next.

I encourage first timers to get help with their first flip. Hire a consultant to hold your hand through the process. This can cost you 10% of your profit but it is worth the education you will received. Also for those who love the idea of flipping but lack the time to manage the projects you can hire both full time and part time supervision for your jobs. These are project managers who will schedule, trouble shoot, meet the subcontractors, and ensure quality work. They run between $350 – 1200 a week. If you have a 4 or 5 week work schedule on the house it is well worth $1400 for part-time project manager.

Lastly – no matter how you approach the financing, expert help, budget and offer price….run the numbers, over and over again as each one of these items changes.

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