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Flipping the Flipping Trend

December 14, 2016

 

My intent with this post is to squash the impressions imposed by the flipping trend. 

I will explain the moving parts to flipping a house so that no one reading this is under the impression that it's as easy as it's often projected to be. 

 

Note that these steps don't necessarily have to happen in this order.

 

Step 1: Find the house

This involves door knocking, sending mailers, cold calling (illegally) and 'networking with agents' although we'd probably benefit more from putting it on the market and everyone knows that but doesn't say it. The price of this house must be A LOT lower than market value to make the risk and profit worth it. This is becoming increasingly more difficult because, now, information is easily accessible for everyone. Lots of the stories you'll here at seminars are about elderly people who had no idea of what their house was worth and were convinced by a door-knocking investor that a cash offer was the easiest way out of their horrible situation. Now, these elderly people are hip to the magical internet and they also hear the commercials for these seminars on the radio so they aren't interested in being coerced by anyone. There's the chance that your friend has a house that is beat up and will give it to you for next to nothing but, if you get through that one and make a profit- time to go search for another..

Like many things in life, it makes it WAY easier to have lots of cash in these negotiations. Because people usually say to themselves "Well, if (s)he's made this much money, than (s)he must be right about everything (s)he's saying right?" Which brings me to the next topic:

 

Step 2: Find the Money

If you don't have it, you're parents don't have it, your wealthy friends don't trust you with it - How could you obtain this awesome OPM (Other Peoples Money) everyone says is so easy? Trending topic- Hard Money Loans. Hard Money Lenders are qualified investors that want to make money and won't lend you money unless you prove that you will pay them back with lots of interest. They prove this by asking you to present your full understanding of your deal, requiring previous experience in what you're doing and even asking for a credit check at times. The chances of you buying a house off-market, at a serious discount, using a loan from a bank to fund it, are slim to none because this takes 45-60 days, at this point, and includes an appraisal- which unveils the fair market value of the house. Doing this repeatedly is even less likely.

 

Step 3: Find the Contractors

Some people get a kick out of fixing up houses and are really good at it, most people can't honestly say that they have both of these aspects. You might be a great designer and even be capable of breaking some walls down but what about installing a window (correctly) and fixing the corroded sewer line (correctly)? Not to mention the roof, mold, insects, pests, installing flooring, radon remediation, etc... In other words, you need a team of contractors that will give you a huge discount for houses that need lots of work in order to complete a diverse group of repairs and still make money at the sale of the house. 

 

Needless to say, I most often see those who successfully flip houses having come into the game with a ton of money and/or a lifetime of contracting experience.  

 

Step 4: Selling the House

Selling it yourself (FSBO), without putting it on the RMLS, is asking for investors and negotiators to approach you with the intent to drive the price down. If you want a team of agents across your city to contact every buyer they know who might be interested, put it on the market.

Putting it on the market would mean you're giving an agent a cut. Believe it or not, I see this most often and it's because those who flip houses regularly are more focused on the renovation aspect and/or managing the moving parts of the system they've created. Either way, they aren't interested in taking calls and doing showings because that keeps them from the heart of their business. 

 

Perspective:

Lots of the gurus started their flipping around 2009 and rode the economy and home prices up till they got so big they could give the impression that it's as easy as cake. Things have changed and will continue to change. 

About 70% of the showings I do are of a house that someone wanted to flip and stopped half way. Whether it's because they couldn't finish one project in the house before starting another and eventually felt overwhelmed; or because they ran out of money; or simply because they noticed that they have no idea of what they got into and would rather loose a little money than persist this mammoth mission they've embarked upon. 

It's true, anyone can do this. Just like anyone can study philosophy and argue about it, just like anyone can practice the guitar enough to play a Hendrix solo, just like anyone can open up a coffee shop and have it become a world-wide phenomenon... Anyone can do anything. 

If I was elderly and had some money that didn't fit into my investment fund, I would buy a multifamily property before giving it to a guru that will supposedly flip houses with it. Do what fits you, not what looks like easy money. 

 

 

 

 

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