Flipping Houses For Dummies - Roberts Ralph R.

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to be no-work zones, and these zones changed daily. She tried to seduce the contractors, and when real estate agents arrived to show the house, she called the police. During the rehab, the Roses’ son was caught doing drugs in the house.

      Mrs. Rose moved out, only to be replaced by Mr. Rose’s girlfriend. When the contractors returned to work, they found the girlfriend at the top of the stairs, dressed only in her nightie, drunk and in a jealous rage. She proceeded to fall down the stairs, shedding her wig along the way. By the time the Roses cleared out, the place was completely trashed.

      We finally managed to take possession of the house, complete the rehab, and place the property back on the market. We were willing to sell for $1.8 million, and when we got our first offer for $2.2 million, we were ecstatic, but we weren’t out of the rose bushes yet.

      During negotiations we found out that the instrument the buyer was using to pay for the property qualified as an illegal use of treasury bonds. We informed the FBI, which set up a sting operation to nab the bad guys. The fraudsters showed up three hours early, discovered the sting, and split town.

      We eventually sold the house for $2 million and netted a $250,000 profit for about a year’s effort. Not bad for a year’s effort, but it wasn’t the quick and easy money we had expected.

Gathering the Essential Tools of the Trade

      Every job requires a collection of specialized tools. For flipping houses, make sure you have the following bare essentials:

      ❯❯ Flashlight, because you never know who or what is just around the corner or in the crawlspace – it could be someone in a nightie or pajamas, or it could be an animal.

      ❯❯ Digital camera for taking photos of properties and before-and-after pictures of repairs and renovations.

      ❯❯ Calculator for crunching numbers.

      ❯❯ Day planner or tablet for jotting down names, addresses, phone numbers, and appointment times and locations.

      ❯❯ Smartphone with plenty of useful apps, including GPS, a general-purpose calculator, a loan calculator, and a calendar. Realtor.com has an excellent app for iPhone, iPad, and Android (visit www.realtor.com/mobile). Google Maps is useful for scoping out a property, and Zillow has an app for doing a quick price check on a property (although Zillow property values aren’t the most reliable).

      ❯❯ Reliable transportation that’ll get you to and from the job site as well as any errands in between.

      ❯❯ For Sale signs (if you’re planning on selling the home yourself).

      ❯❯ Business cards to hand out to everyone you meet, so if someone needs to sell a home in a hurry, they call you first.

      Of course, if you’re planning to do some or all of the repairs and renovations yourself, you also need a garage full of hand tools, power tools, and lawn and garden equipment.

Chapter 3

      Devising an Effective Flipping Strategy

      IN THIS CHAPTER

      ❯❯ Exploring a variety of flipping strategies

      ❯❯ Plotting your course well in advance

      ❯❯ Formulating a backup plan

      Before making an offer on a house, know how you’re going to profit from it. Are you going to buy it at a bargain and resell it immediately at market value (or for less to sell it faster), do a quick makeup job and resell it, perform some major renovations, or fix it up and use it as a rental? Each of these strategies has benefits and drawbacks, but each strategy is a perfectly legitimate way to flip property for a profit.

      This chapter explores several house flipping strategies and encourages you to develop your own strategy based on your neighborhood, the resources you have at your disposal, and your preferred approach.

Surveying Different Strategies

      When developing a game plan, you want to maximize your strengths, minimize your weaknesses, and fully exploit the opportunities that surround you. Many flippers have already developed their own strategies that achieve those three goals. By becoming more aware of these existing strategies, you can choose the one that fits you best and perhaps even improvise to develop your own unique strategy.

      In the following sections I reveal house flipping strategies that many flippers practice with varying levels of success.

      

Always buy low. If you can’t get a house for at least 20 percent less than what you estimate it will cost to buy, repair, hold, and sell it, keep looking. Chapter 12 shows you how to calculate your maximum purchase price to improve your chances of earning a decent profit.

       Buy into a hot market

      In a sizzling real estate market, you can turn a profit fairly quickly by buying a house, moving in, and then sitting back and watching the real estate values soar. This approach works only if you have time on your hands, are speculative by nature, and have a knack for purchasing houses in a hot market at just the right time. This strategy offers several benefits:

      ❯❯ If the market remains strong, your property value rises without your having to lift a finger.

      ❯❯ Your equity in the property rises, boosting your borrowing power for other investments.

      ❯❯ By living in the home for two years or more, up to $250,000 of your profit ($500,000 for a couple filing jointly) may be tax free, at least according to the tax laws in place when I was writing this book. See Chapter 23 for more tax-saving tips.

      

Buying into a hot market also carries some significant risks:

      ❯❯ Where property values are soaring, the housing bubble may burst, leaving you with a home that’s worth less than what you paid for it.

      ❯❯ Stuff happens. You can have a great house at a great price in a hot market with the top agent working to sell it, and the house still may not sell. Prepare yourself for all contingencies.

      Chapter 6 has more details on taking the temperature of the real estate market in any neighborhood you’re scoping out.

       Buy low, do nothing, and sell quick

      Occasionally, you stumble on a house that’s priced significantly below market value and requires few or no repairs. The property may be in foreclosure or perhaps is part of an estate that’s being liquidated, making the owner very motivated to sell. By being at the right place at the right time with ready cash and a solid plan in place, you can pounce on the deal and then put the house back on the market the very same day!

      Sounds great, huh? Well, getting a house that’s way below market value is great when it happens, but being in the right place at the right time takes time and effort. You need to build a solid team (see Chapter 4 for details), do plenty of research, secure some solid investment capital (see Chapter 5 for tips on financing your flip), and be properly equipped to execute this strategy.

      

Beware of deals that are too sweet. If a stranger approaches you at an investment seminar with a hot tip on a piece of real estate, for example, he may just be looking for a sucker to buy a property he got stuck with. Unless you know the market values in the area, see the house with your own eyes, and research the title (as I explain in Chapter 10), don’t take the bait.

       Buy low, apply makeup, and sell quick

      You

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