Flipping Houses For Dummies. Roberts Ralph R.
This book was made possible by all the mistakes I’ve made. Without those mistakes, I’d have little wisdom to impart. The more you take away from the mistakes I made, the fewer mistakes you have to make yourself.
❯❯ You want to flip properties legitimately. Con artists often flip properties to scam buyers and lenders. I’m not a con artist, and I denounce illegal, unethical flipping. By flipping legitimately, you stand to earn much more than a low-life con artist ever will, and you keep your reputation and integrity intact.
Throughout this book, icons in the margins highlight different types of information that call out for your attention. Here are the icons you’ll see and a brief description of each.
In addition to the abundance of information and guidance on flipping houses that I provide in this book, you also get access to even more help and information online. Go to www.dummies.com and search for “Flipping Houses For Dummies Cheat Sheet” for a free cheat sheet that accompanies this book. It includes a checklist for revamping a quick-flip property, offers tips for financing flips – and more.
Think of this book as an all-you-can-eat buffet. You can grab a plate, start at the beginning, and read one chapter right after another, or you can dip into any chapter and pile your plate high with the information it contains.
If you’re looking for a quick overview of house flipping, check out Chapter 1. Before you even start house hunting, check out Chapter 4 to discover how to build a strong support network and Chapter 5 to find out how to finance your flip – you need cash and plenty of it to flip a house. Chapter 12 helps you determine how much you can afford to pay for a property to increase your odds of walking away with a profit. And the chapters in Part 3 are indispensable in helping you track down potentially profitable properties and negotiate the purchase. Wherever you choose to start, you’ll find plenty of useful information and guidance.
Part 1
Getting Started with House Flipping
IN THIS PART …
Get up to speed in a hurry on the process of flipping houses.
Flip houses the right way and avoid fraudulent flipping schemes.
Find out whether you have what it takes to flip houses in terms of time, money, and mindset.
Explore a variety of house flipping strategies ranging from buy-fix-and-sell to buy-hold-and-lease.
Build a dream team of real estate professionals, lenders, and contractors to expedite your flips and cover your back.
Get your mitts on some cash to finance your flips by using your own and other people’s money (OPM).
Chapter 1
Brushing Up on the Basics
IN THIS CHAPTER
❯❯ Understanding the concept and challenges of flipping
❯❯ Flipping the right way – legally and ethically
❯❯ Developing a winning strategy and the right connections
❯❯ Marketing and staging a house to maximize your profit
Flipping sounds easy. You can flip a pancake. You can flip a coin. Without too much effort, you can even flip out. Flipping a house, though, requires a level of knowledge, expertise, and sticktoitism unrivaled by any of these mindless tasks. It requires access to cash, and lots of it. It demands time, energy, vision, attention to detail, and the ability and desire to network with everyone – from buyers and sellers to real estate professionals, contractors, and lenders.
In this chapter, I offer a broad overview of what flipping houses is all about. I introduce the overall strategy of flipping houses – buy low, renovate, and sell a property at fair market value to earn a fair market profit. I also reveal the difference between flipping the right way – legally and ethically – and flipping the wrong way – ripping off buyers, sellers, and lenders for a quick wad of cash.
In investment circles, the secret to success is cliché: buy low, sell high. This same principle applies to flipping houses. To succeed, you buy a house at 20 percent to 50 percent below market value, repair and renovate the property, and then turn around and sell it at market value. That three-step process – buy, fix, and sell – certainly sounds easy enough, but each step carries with it a host of unique challenges, as I point out in the following sections.
Spotting distressed property
Homeowners don’t exactly line up around the block waiting to sell their homes for less than they’re worth. As a house flipper, your job is to hunt for the homes in your area that are dontwanners, as in “the owners don’t want ’er.” These orphan homes usually appear bedraggled. The yard looks like a weedy wasteland, the gutters are hanging off like old false eyelashes, the paint’s peeling, and the interior is completely trashed. These properties are often referred to as distressed, and their appearance indicates that their owners are distressed as well. Their dream home has become a nightmare.
When homeowners need to shed the burden of home ownership, they may not have the time and resources to repair and renovate it, place it on the market, and wait for months or even a year for a buyer to make a reasonable offer. In such cases, they’re often willing to sell at a greatly reduced price to a serious buyer who has the financial resources to close the deal. How do you discover opportunities like this? In Part 2, I point out several techniques for discovering distressed properties and their distressed owners.
Doing your homework
Flipping houses is a risky venture, but you can minimize risk and maximize profit by doing your homework:
❯❯ Research the property. If you’re buying a property in foreclosure, probate, bankruptcy, or a similar situation, research the property carefully to make sure you know what you’re buying. Research includes a visit to the property and to the Register of Deeds office to research the title and other key documents. See Chapter 10 for details.
❯❯ Estimate costs of repairs and renovations. Knowing how much you’re probably going to need to spend to make the property market-ready is key to knowing how much you can afford to pay for the property and still earn a profit. In Chapter 11, I explain how to inspect a property with an eye for repairs and renovations and estimate your rehab costs.
❯❯ Calculate your maximum purchase price. Before you make an offer on a property, you need to calculate the most you can pay for it to earn the desired profit after costs, including closing costs, renovation expenses, holding costs, and agent commissions. In Chapter