Flipping as a concept has been around for as long as real estate deals have
been made. The term “flipping” is actually much newer and is very similar in
some ways to wholesaling houses. But how does flipping real estate work, and how
can you make it work for you?
The idea of flipping is pretty simple – you pick a house that you can purchase
at a reasonable price, do a bit of work, and sell it at a good profit. Sound
incredibly easy? That’s because flipping basically is. The first (and sometimes
most difficult) step is to find the good deals for flipping houses. Potentially
profitable flipping deals exist in the form of foreclosures (HUD and other
specialty loans sometimes offer the opportunity to get into the house with
little or nothing down), auctions or long-term listings that simply haven’t
garnered an offer. Those motivated sellers typically come from situations
involving divorce, death, moves, downturns in the economy, etc.
Once you’ve located houses with the potential for flipping, you have to do some
heavy-duty evaluating. The houses that have real cosmetic issues often make the
best houses for flipping. Here’s why.
A buyer with cash to take on a mortgage is searching for a new home. He looks at
a house that needs new carpeting, has scuffed up walls and peeling wallpaper,
and much of the decorative trim is sagging or gone. That buyer is not looking
for a “fixer upper” – he’s looking for a turnkey home ready for occupation. The
house has incredible potential and it’s certainly a good buy, but this buyer
simply isn’t interested.
But for the person looking for flipping property, this is the deal of the day.
Because the house is simply not attractive, it’s not likely to get a lot of
interest except by those looking for flipping deals or bargains. The realtor may
very well have explained to the seller that the house is worth less because of
the cosmetic issues. The seller is not anxious (or willing) to make a big profit
by doing the necessary work to make it attractive to potential buyers. But the
person planning on flipping the property understands that the cosmetic issues
will be fairly easy to repair and takes on the property (usually at a good
discount) with the knowledge that this isn’t a home – it’s a flipping project.
So why doesn’t the owner just sell to the person looking for a bargain in a
home? That’s always a possibility, but keep in mind that the person looking for
a bargain may be in a poor position to get financing. For the seller to get a
good price for this property, he must either deal with the “ugly issues,” or be
prepared to offer some financing.
This is where the investor looking for flipping opportunities is likely to find
an incredible deal.
That same property that saw a lack of interested buyers (and real estate agents)
will likely get plenty of action once those cosmetic issues are resolved. But is
new carpet, some paint, a bit of trim and a few other minor repairs enough to
garner a profit? If you can do at least part of the work on your flipping
yourself, you’ll be surprised at how much profit you could expect to make from a
deal like this.
Once you’ve decided to try flipping, finding the bargains is the first important
step. But knowing that the flipping property will be in demand once the work is
complete is just as important. And remember that you don’t have to take on
incredibly complex structural problems just to make a good profit from your
flipping project.
