Flipping Houses Strategy – Don’t Get This Wrong!

Define your “House Flipping” Strategy and Stick To It

When referring to flipping properties, we are referring to the “art” of buying a broken down house, rehabbing it quickly, and turning it into profitable asset in the least amount of time at a controlled cost. The exit strategy can be either to sell for quick profit or rent out the house for cash flow.  The decision typically depends on the state of the current economic market cycle. When property values are skyrocketing it’s easy to fix and flip for quick profit. When it’s a buyer’s market, usually during economic downturns, it’s easy to create positive cash flowing rental properties. Regardless of which profit strategy is chosen, stick to it without wavering.  In the long run this will save you money by not wasting time bouncing back and forth between strategies just because it’s taking longer than you originally planned for to sell or rent out that house. Hence the importance of reserve funds. Unless you completely misread the market, don’t change strategies mid stream.  Nothing more than that is needed to be successful in this business. Expensive guru courses and creative techniques are not all bad, but they are certainly not required to get started in making money with real estate.

Why Buy REO’s?

Because REO properties or bank owned foreclosures will be the easiest properties to acquire and locate and therefore the best properties to start your real estate investing career with.  REO homes have already been through the foreclosure process, they have been returned to the bank, and are being offered with clear titles with no negotiating necessary other than the price.  Real estate investors interested in starting a “fix and flip” or “fix and hold” business should focus their initial efforts on construction cost control and marketing of their affordable housing rather than creative techniques to acquire super cheap properties.  Everything an investor needs is on the MLS right now.  Wholesalers can be a good source of cheap properties also, but make sure they are not just regurgitating what’s already on the MLS.  A new investor should direct their attention on not blowing the construction budget and quickly finding a buyer or tenant instead of trying to perfect creative ways to acquire cheap property.

IMG 0631 1 Flipping Houses Strategy   Dont Get This Wrong!

Flipping Houses

What kind of Property and Neighborhood Should I Invest In?

  • In the “flip this house” business, single family homes are the bread and butter of quick profits and/or long term cash flow.
  • Look for 3-5 bedroom homes with decent size bedrooms as your target properties. Small bedrooms are big turn offs to potential tenants and buyers, even when dealing with affordable housing. (Requirement)
  • Choose brick over frame homes if possible. (Not a requirement)
  • The neighborhood needs to have access to public transportation and a major metro nearby with plenty of jobs. (Requirement)
  • Avoid war zones and neighborhoods that are constantly on the nightly news due to their crime rate. (Requirement)
  • Don’t fall into the trap of targeting neighborhoods with the absolute cheapest homes on the market, you’ll never maintain a decent tenant. (Requirement)
  • Decent sized, freshly rehabbed homes in good blue collar neighborhoods have the largest pool of potential buyers and good renters in the market place. (Requirement)
  • Just an observation: A “good” neighborhood typically has well maintained lawns; it shows that people care about their homes.
  • Avoid buying a home with a boarded up home next to it or across the street from it and preferably with no other boarded up homes on the block if possible. (Requirement unless you can buy all the boarded homes on the block)
  • Check to see if the county’s section 8 voucher program has a waiting list. Many areas across the country do and this can be a great way to acquire steady and reliable cash flow. (Not a requirement)
  • Target a neighborhood that meets this criteria and farm it. (Requirement)

Also, it greatly helps if your target neighborhood is less than an hour from your house. This may not be possible, but at least stick to one neighborhood and don’t start buying homes on opposite ends of town. This will kill your efficiency in very aspect. Buying foreclosures, fixing, flipping, or renting for cash flow is not that complicated when you stick to the basics.

How Much Damage Should the Property Have?

Many gurus recommend only purchasing cosmetic fixer uppers for ease of rehab and minimum risk; probably because they don’t know how to fix “real” problems. That’s OK though. If you can find cosmetic fixer uppers that will cash flow and have a no more than a 65% LTV after repairs, then I suggest you start with these. There are many failed landlords out there who have lost good properties as a result of this historic real estate market crash and these properties are now for sale at dirt cheap prices as REO’s.

In order to get some even better deals, consider going after homes that are in need of major repairs requiring a gut rehab.  Many investors shy away from these because of their lack of knowledge in how to repair them and what the cost will be.  Gut rehabs, where all of the drywall, most electric, and most of the plumbing needs to replaced is the sweet spot for getting a great deal.  Banks will usually give these away depending on the investor competition in your area.

Unless you really know what your doing, stay away from whole house mold damage, fire damage, sagging foundations, major additions, and changing floor plan layouts.  All of this can be managed but be very careful that your numbers make sense.  Also take into account the extra time that these repairs may take and would you be more profitable performing another “standard” rehab instead of focusing on one big one. A gut rehab on a single family home of approx 900 – 1200 sq. ft. should take no longer than 21 days to complete if properly planned.

Why Buy Single Family Homes Instead of Multi-unit Homes?

Single family homes are the easiest properties to rehab, rent out, and profit from with more exit strategies than any other type of property.  Enough said.  Yes, it’s true that when a tenant moves out of a house it is a 100% vacant unlike a multi-unit property with several units producing rent.  But many times tenants leasing well rehabbed homes will stay longer and be less of a hassle than the tenants in apartments.  Single family homes also have the largest pool of potential buyers when it comes time to sell.  Potential buyers include the tenants themselves who may be eligible to purchase the house, another real estate investor looking for steady cash flow, or a homeowner looking for an affordable home in good condition.

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