Flipping Houses Works in ANY Market!
For years, hot-shot speculators made huge profits flipping condos in Florida and Vegas before they were even constructed. All the while, the naysayers in the ivory towers of Wall Street and academia warned of a “housing bubble” that was sure to burst as all bubbles do.
When Fed chairman, Alan Greenspan, said that the national real estate market was “frothy,” the writing was really on the wall, and anyone with half a brain could see that we were in for a “cooling” of the housing market, at best. Yet still, speculators continued to profit, and the real estate bull market marched on…
But the bulls aren’t marching now. Greenspan handed his matador’s cape to the new Fed chairman, Ben Bernanke, who continued the policy of interest rate hikes designed to deflate housing.
No longer accelerating at a break-neck pace, home prices have flattened like a pancake in many markets, and new the condo speculators who got in late are in for a world of hurt.
Clearly, the housing “boom” is over in many parts of the country. But contrary to the media hype, this is great news for flippers!
Flipping vs. Speculating
There is a difference between flipping and speculating. While speculators may be a subset of flippers, they are, at best, the amateurs of the real estate investing family. Flippers who have consistent success are more conservative and have a fundamental approach to real estate investing.
While it may not be as exciting as speculating, the rewards of more conservative flipping are nearly as generous, and they far less risky. The biggest difference between flipping and speculating is that flipping works in any market, whereas speculating only works in certain places at certain times.
From 2002 to 2004, Las Vegas was a great time and place to be a speculator. But if you were still in the market in 2006, chances are you got burned by more than the hot desert sun.
Basically, speculating often works on the “greater fool” theory that you can always find a greater fool than yourself to take a property off your hands in the expectation that he will be able to find yet a greater fool. Eventually, someone is left holding the bag, and that’s when the party is over.
Flipping, by contrast, relies on fundamentals. The idea is not to catch a shooting star in a rapidly appreciating market. Rather, the plan is to find undervalued properties, rehab them, present them in an attractive manner, and sell them for a reasonable profit. Not only is a rising market not a requirement of flipping success, it may even be a mild detriment!
After all, it is a bit harder to find bargain properties in booming areas. Sure, it can still be done, but the point is that even falling markets are prime for flipping since the holding period is generally too short for the value of the property to decline beyond the deep discount at which it is purchased. Assuming you add value through rehabbing, you almost can’t lose!
Exit strategies–Always have a Plan B
While speculators rely on the “greater fool” strategy, flippers tend to have one of two exit plans:
- Quickly flip the title to another investor, or
- Rehab and sell the property at the retail level
While the lion’s share of the profits go to the retailer, a quick wholesale deal can free up your cash (and energy) for the next deal. But what if neither strategy works? What if the market really crashes and the buyers disappear? Is all lost? Of course not!
For complex economic reasons, the rental property market does not always correlate with the housing market. In fact, they are often counter cyclical. Although most flippers aren’t terribly interested in being landlords, generating rental income from a botched deal is a solid backup plan.
Better yet, you can usually refinance the property after rehabbing it to get all of your money out. From that point forward, the bulk of your rental income will be pure profit, and when the market improves, you can make the sale. Even better still, you can offer your tenants a lease with an option to buy, which is attractive to many young families looking for their first home.
The media portrays real estate flippers as the investment world’s version of Wild West gunslingers. But in reality, nothing could be further from the truth. Compare the “worst case” rental income scenario of real estate flipping with the “worst case” Enron scenario of stock market investing. There really is no comparison!
If you take a fundamental approach to real estate rehabbing and flipping, your risk is limited and your profits are virtually limitless. It really is the best of all worlds.
By : William Bronchick
What To Look For In A Fixer-Upper
Buying fixer-uppers has been a common investment technique for many years. These days, with millions of foreclosed homes available at bargain basement prices, fixer-uppers can be an excellent choice for buyers who are shopping for a home to live in, as well as for real estate investors.
Fixer-uppers are properties in need of repairs. They may be liveable in their present condition, or they may need quite a bit of work before they can be occupied, but in either case, there are some very important considerations when choosing the right property to help insure that you can achieve your personal objectives.
1. The Location
It used to be pretty rare to find a fixer-upper in a nice neighborhood, but the housing crisis has changed that. Today, fixer-upper properties are readily available in many of the nicer neighborhoods, especially in those states that have been hit hardest by high rates of foreclosure.
Don’t be impatient. Look around your chosen area carefully before making a final choice. It’s very important to be familiar with the local market. Choosing the right location will result in better property appreciation, and more demand when you are ready to sell, or better tenants and higher rental rates.
Avoid locations that have too many vacant properties, locations that have too many other investors in the area, or are places that you would not want to live yourself. Investor over-crowding tends to increase your competition and will therefore reduce your profits.
2. Know The True Market Value.
A property is not always a good deal just because it is a fixer-upper. Don’t let anyone sway your judgement about a property simply because it’s a fixer-upper. Just because a home has been foreclosed on does not automatically mean it is a good deal. Good deals are made through knowing what the true market value is, then negotiating a price that is as far below the true market value as possible.
3. Find A Fixer-Upper Project That You Can Handle.
Whether you are planning to live in the property, fix it up to sell or fix it up to use as a rental property, the most common mistake is that of taking on a project that is beyond your ability to handle.
I’ve done dozens of fixer-upper projects, including managing them for other investors. The biggest problem I’ve seen consistently is investors who take on projects that are bigger than they can handle. This leads to cost over-runs, projects that take too much time, and even running out of money and another foreclosure. I’ve seen numerous projects that were never finished after the buyer got over budget and ran out of money.
It’s easy to rationalize a project before you start, and inexperienced investors often believe that they can renovate an entire house in 4 weeks, working only on weekends in their spare time. That is a common mistake.
One biggie I suggest is to avoid any fixer-upper that needs walls moved in order to be functional. Moving walls and things like staircases can create unexpected problems unless you are planning to use a contractor who has adequate experience and a crew that can get the work done correctly. I’ve seen projects that began well and got totally out of hand and over budget after the investor decided to make extensive changes to the original floor plan.
If you choose a fixer-upper property in a desirable location, keep your rehab budget and necessary work within your ability to control, and you have a good renovation plan that you can stick with, you should find yourself owning a great property at a below market price. That means you’ll have some positive equity or a positive cash flow right from the start. And after all, that’s the main reason why you should consider buying a fixer-upper.
Is Investing in Distressed Property Worth It?
There are many ways to invest in real estate, but in the end like all investments it is about the return on investment that you expect to make later that should decide if the investment is worth it or not. With the current state of the real estate market a lot of properties are worth less than they were previously valued a few years ago. Some of these properties can be run down due to being vacant such as in the case of a foreclosure and in some instances the previous occupant just may have not taken care of the property like they could have. This is what is referred to as a distressed property.
If you are looking to invest in distressed properties be forewarned that there may be underlying problems that could end up costing you more money than it is worth. You can go ahead and expect to possibly put in a considerable amount of time and money into fixing the property up for resale or rental. If you have money to spare and enjoy the satisfaction of accomplishment when finished fixing things up then a distressed property may be a fun and rewarding investment for you.
If you do not have the time or don’t have handy man or handy woman skills you could always hire someone else to do the dirty work for you. One business that is becoming more popular in this distressed property market is property preservation companies also called foreclosure cleanup companies. These companies will come in, fix up the property and get it ready to go back on the market.
Before you jump head first into a property make sure you do your due diligence. Consider the surrounding market conditions, are things selling, or are they holding steady? Are properties nearby increasing in value, or depreciating? Zillow can be an excellent resource and give you a quick idea on this. Also consider the demographics of the area. Is this location an area with a steady workforce and jobs? You want to make certain that there is no shortage of jobs in a given area. This is important for keeping property occupied with tenants in the case of passive income on rental property. It could be a blow if an area’s job market dried up and people no longer desired to live there. If you were depending on that cash flow from rentals you would not only have a hard time getting new tenants, but try selling a property in an area that no one wants to live and see what happens.
How is the crime rate in the area? I personally wouldn’t want to invest in an area that was attractive to criminals. You can contact the local police for this information which is public record. You might have to submit an official public records request and they may charge a small fee for the research but, it could save you a headache later if you can avoid a high crime area.
In the end what it all comes down to when investing in distressed property is will doing so meet your investment goals? If not then it would not be a wise investment. If you are smart about it and are able to obtain some good properties then distressed property could become a profitable and important selection in your real estate investment portfolio.
Being a Real Estate Bird Dog
A bird dog is someone who locates a good real estate investment deal. They put the property under contract with the purpose of assigning that contract for a fee, to an investor. The investor would then repair this distressed property and resell it. Being a bird dog, without a doubt, is a creative decision that should be considered because you do not have to put any of your own money in on the deal. This entry level start teaches you how to find properties, locate buyers and put the entire deal together. This is a great way to start learning about real estate investing, for any newcomer. Bird dogs form great relationships with realtor, brokers, bankers, loaners and anyone else who can deliver knowledge of a beneficial real estate investment.
Market Yourself
In order to be a successful bird dog one you should be able to market yourself in ways that will attract motivated sells leads. The best way to measure you marketing success would be to know the more about the business. Below are some of the things you should know about your motivated seller marketing plan:
- Know where your leads come from
- Find out the amount of prospects you need to reach to get a lead.
- Get an amount of quality leads.
- Calculate the number of leads we actually close.
Be realistic, some deals won’t make it to closing due to problems that are no fault of your own, such as a liens or judgment on the property or maybe the inspection fell through. Once you get your marketing plan in order you should be able to see which choice gives you the best return and those will be the ones that you would naturally grasp and continually use
Compensation
When a real estate bird dog locates the investments property they then provide this information to the investor. After the closing on the property, the bird dog is then compensated with either a percentage of the deal or a flat fee. For some bird dogs the finder’s fee percentage could run in the 3% to 6 % range and the flat fee would be $500 – $1000.
Finding your Buyers
A good real estate bird dog is as good as the buyers on your list. You will first need to build your buyers list of investors that are currently looking for deals. Your investors equal the cash you need to close any good deals that you find. You should start with at least 20 serious buyers to propose a sell on any property you find. The easiest way to locate investors would be to search for them on craigslist or even placing and add in your local paper.
Locate Sellers
Once you have your buyers lined up you want to find properties to get a deal started.. A few ways to find your sellers are the newspaper, for sale signs in the yard, and placing your own ads in the newspaper and on craigslist or even the internet.
Presenting your Deals
Once you have your buyer and the property, you want to have everything laid out for your buyer in a professional manor. You have to package your deals to make you look like a professional bird dog that knows your local real estate market.
A few things you want to have are as follows:
- Property Address
- Asking Price
- Location of city
- Type of house
- Pictures outside and inside
- Pictures of houses in the neighborhood
- A brief assessment of the house
Provide all of those into a package and you will ensure that your buyers will appreciate it when you come around because all they have to do is research the numbers and tell you if there is a deal or not.
Being a bird dog is a great way to start becoming an investor. All it takes is the ability to turn over or properties in the shortest amount of time for the most profit.
How To Market For Leads On A Shoestring Budget
As Real Estate Investors the important thing is to continue to market for leads. In order to produce revenue, the leads have to be rolling in. For most investors this seems like the hardest thing to do. It can be a challenge with limited or no funds. But with the power of social media, and internet you can market and reach thousands of people with the click of a mouse button.
With Facebook being the Number one Social Media website in the World, that has over 500 million users it is a great resource to market for leads for motivated sellers or buyers. The average person knows 250 people. So if you were to get your message out to all of your Facebook friends, I’m sure one of them or either they know someone that is motivated to sell there property due to a unfortunate circumstance. Also another new and upcoming social media site which is trailing Facebook would be Twitter. It has over 150 million users, and another great marketing tool to find more motivated leads from Sellers & buyers.
Another great free source to use would be classified sites. Craigslist being the #1 site to use especially to help spread your marketing message. Backpage is another good one, and there are several more free classified sites you can post ads to start bringing in leads. By far one of the best ways to spread your message that you buy & sell homes, would be Word of Mouth. Set a goal to come in contact with 5 new people and let them know you buy and sell real estate, and if they know anyone that is desperate to sell there home to contact you and you will pay them a referral fee if the deal closes. This alone if done for 30-45 days straight will land you a deal or two. You got to get out and network and start talking to strangers.
If you have a little marketing budget by far the best way to bring in some calls of sellers would be to start sending direct mail. Yellow Letters or postcards work the best when sending to sellers telling them your interested in buying there home. Your phone will start ringing off the hook. Just remember to stay consistent in our marketing. You must do it several times before you actually strike gold! Once you do you can take the money you make off your first fw deals and re-invest it back into your business.
The Facts About Distressed Properties Real Estate Investing
The Facts About Distressed Properties Real Estate Investing
The key to making a profit in real estate investing is through purchasing properties for as low as possible then reselling them for a higher price. Such is the case with distressed properties real estate investing. This is one of the most popular techniques used by real estate investors. Once you know how the steps to take with distressed properties investing you, too, can employ the technique to make higher profits.
The first step in investing in distressed properties is locating distressed properties. These properties are those that have a lower value because of their condition, appearance, or the owners financial situation. One or more of these elements should be present for the property to be considered distress.
When investing in distressed properties you cant just choose any house that is in poor condition. There are some distressed properties that can end up costing you more to repair than you will make in profit from the homes. The best properties for investing in are those that can be repaired with as little cost as possible. These properties just need holes in the wall fixed or a paint touch up to increase the value of the home.
Keep in mind that not all distressed real estate requires repair. Remember that a distressed property can be qualified as such because of the owners financial situation. Divorce, death in the family, job loss, and job transfer are just of the few causes of distressed properties. These kinds of properties are the best kind of all to purchase because they can be purchased for a lower price and do not require any repair.
Real estate investing, especially distressed properties requires some work to find the properties. In some cases, you may be able to drive around the neighborhoods in which you invest and look for properties that seem distressed. When you find these kinds of properties take note of the address, then use court records to find the owner of the property. If the home is not abandoned, you can knock on the door and inquire if it is for sale from the owner.
With distressed properties real estate investing you must act quickly. There may be other offers on the table. Even if there are currently no offers, you can expect for offers to begin coming. Chances are you arent the only investor interested in distressed properties real estate investing. Other investors are using the same techniques to locate distressed properties and may swoop in with better deals. Act as quickly as possible to avoid losing deals.
One of the most lucrative kind of investing is distressed properties real estate investing. Most of the work is associated with locating the properties. If you know that you will be looking for properties, it is a good practice to get pre-qualified for financing first. Since time is critical when investing in real estate, you need to save as much time in the process as possible to make sure that you dont lose the deal to someone who already has financing.
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