Flipping Houses / Real Estate Investing

**mnt11592** · 05-21-2007 09:11 PM

We have all seen those flip shows on tv and I am interested in investing in real estate at somepoint myself. If anyone has ever invested in real estate or has a been a landlord, please tell me your experiences and possible tips. And another question, If I use a general contractor and I get a quote, does that include materials.

Thanks!

**ProLogic** · 05-21-2007 09:37 PM

Not a good time to house flip. My dad invests in the real estate property in the Bay Area and he said it's not a good idea to buy anything right now unless you absolutley have to purchase a home and have the money. He says in a year or so the market will loosen up in about a year or so.

**dosrotties** · 05-21-2007 09:48 PM

Your questions are general. I have bought, sold and rented. hard to find good tenants sometimes and the rent needs to cover the morgage. If you want to build a kingdom you need to be patient and find good loan to value. never fall in love with a propery. always be prepared to walk away from a deal.
If you are going to flip homes buy cheap small homes. Entry level. They sell faster than the nice big one.
but with that let me say its easier to buy a million dollar home than a cheap one. Millionares build there own dream homes they don't buy someone elses.
I funded a business though real estate 6 years ago. Raised 500k in 2 months.
All you need is really good credit a job and a little money in the bank and a friend with really good credit. simutaneous closing. purchased 4 homes in 30 days before the home purchase effects your credit.

California is down right now, wait about a year and see if the forclosure hit like predicted. Try Utah or Idaho. Find some hard money guys that when they end up with a propety they will dump it to you at a discount. They ussually don't like thier money tied up to long. or you can find the guys who buy off the aution steps. somtimes they will sell at a discount too. to flip it really fast.

Good luck.
The contractor quote can come how ever you want it. Time and material or a quote for eveything. Just tell them what you want.

**ltressel** · 05-21-2007 10:08 PM

Hi,

I've been in real estate investing for three years. My suggestion to you is read books about real estate investing. There are things that you can learn hands on, but before diving in, pick up some books to read where you can learn basics.

Real estate investing is not something you can learn overnight. Before going into it, education started as early as 7 years ago.

Trust me, that you will need to know some things in the areas of finance/mortgaging, research, some real estate 101. It will save you some headaches from getting into some hairy situations.

**dosrotties** · 05-21-2007 10:41 PM

ltressel is right lots of terms and lingo and proper negociation, and proper financing. There are lots of grey areas too that you will need to ba aware of.

**SpencerB** · 05-22-2007 02:16 PM

Originally Posted by ProLogic

Not a good time to house flip. My dad invests in the real estate property in the Bay Area and he said it's not a good idea to buy anything right now unless you absolutley have to purchase a home and have the money. He says in a year or so the market will loosen up in about a year or so.

I'd have to disagree. I think its a great time to get in if you know where to look. Foreclosures are at an all time high right now, and continue to rise. There are tons of absolute rediculous deals if you know how to get to them. They are not the deals listed on the MLS or deals your real estate broker is going to refer you to.

There are a ton of people in the shitter, and in cases like this, deals are everywhere if you know how to work the situation.

The real estate market is similar to the stock market, meaning if you follow the crowd, buying when everyone else is, and vice versa, you aren't going to make money. The last few years was the time to get out of the market, and now is the time to get in, when prices are falling and people are desparate to get out of their homes which they can't afford.

I'm currently learning the ropes of the pre-forclosure "game." I'm going to get my feet wet in the next couples months, and if things go as well as the market looks, I may end up doing it full time. There are deals out there at 20-30% off FMV, with median home prices in my county at approx. $1mil. Do a deal or so per month.... you do the math...

**WanganRunner** · 05-22-2007 04:23 PM

This is indeed a great time to BUY, but it isn't a very good time to be selling.

People are indeed in the shitter, and whenever that happens you can be assured that there will be assets to be had on the cheap. The problem is unloading them, and thus I would persuade you not to, and rather to hold and rent.

This obviously requires that you keep a little more cash on hand for working capital, but you shouldn't ever buy anything to flip that you couldn't otherwise afford to hold anyway. Nice litmus test.

**SpencerB** · 05-22-2007 04:47 PM

Originally Posted by WanganRunner

This is indeed a great time to BUY, but it isn't a very good time to be selling.

People are indeed in the shitter, and whenever that happens you can be assured that there will be assets to be had on the cheap. The problem is unloading them, and thus I would persuade you not to, and rather to hold and rent.

This obviously requires that you keep a little more cash on hand for working capital, but you shouldn't ever buy anything to flip that you couldn't otherwise afford to hold anyway. Nice litmus test.

It all depends on your market. Where I am, Marin County, home sales are on the rise, as well as median pricing. This is far from an average location though, but a valid example.

As they say, you make your profit when you buy, not when you sell. Simply put, you need to build in your profit on your purchase price, and if you plan to flip in the short term, make your exit point 5% below FMV, and calculate your profit off that. There are always real estate buyers out there at the right price.

Personally, I find the ROI on quick pre foreclosure flips to be much higher than a buy hold strategy. Its fairly average to see a 100+% ROI on quality deals. Why hold all that equity up in a property, lets say appreciating at the "average" 10%, when you could flip it, pull out your inital capital plus profit, and move to the next deal. This is the way I look at it, but of course, it turns into a lot of work, more risk, etc.

My 2 cents....

**ProLogic** · 05-22-2007 04:57 PM

Well you have to think the reason there are so many foreclosures. People buy houses with no money down and high interest rates and they can't keep up with the payments. That is why I said its not a good time to buy.. In the Bay Area that is. I'm not familiar with markets outside of California.. The bay area at that.

**SpencerB** · 05-22-2007 05:13 PM

Originally Posted by ProLogic

Well you have to think the reason there are so many foreclosures. People buy houses with no money down and high interest rates and they can't keep up with the payments. That is why I said its not a good time to buy.. In the Bay Area that is. I'm not familiar with markets outside of California.. The bay area at that.

Exactly correct, and thats the point i'm making, as an investor/entrepreneur you can capitalize on this occurance. People are defaulting their payments, and need to get out of their homes quickly before the lender forecloses on the house, and they loose their equity/credit/future. You come in, buy them out of their equity holding at a fraction of market value, or arrange a short sale with the lender, and wha-laa, you've just bought a house at a significant discount from its fair market value, not to mention, you've helped the home owner get out of a sticky situation without killing their credit/equity.

Again, this thread was made from the viewpoint of investing/flipping, not buying a home for yourself to live in.

The wrong time to buy was the last 2 years, now is the right time to start thinking about buying.

**jasaunders** · 05-22-2007 05:30 PM

So you buy real estate at this 20-30% below market value... great. The problem is, it is much harder now to sell. Homes are staying on the market much longer than the last few years. Unless you are buying the property in cash, you will be paying interest while trying to find a buyer.

Yes, its easier to find good properties now, but its harder to sell them.
2-3 years ago, you could buy anything, fix it up and make a profit. Not the case anymore. There are a lot of people in financial hardship, the same people that would normally be looking to buy a house. Interest rates are up and still creeping up, making buying a home less affordable now.

**SpencerB** · 05-22-2007 06:30 PM

Originally Posted by jasaunders

So you buy real estate at this 20-30% below market value... great. The problem is, it is much harder now to sell. Homes are staying on the market much longer than the last few years. Unless you are buying the property in cash, you will be paying interest while trying to find a buyer.

Yes, its easier to find good properties now, but its harder to sell them.
2-3 years ago, you could buy anything, fix it up and make a profit. Not the case anymore. There are a lot of people in financial hardship, the same people that would normally be looking to buy a house. Interest rates are up and still creeping up, making buying a home less affordable now.

So a home sits on the market for a few months... big deal. Want to move it faster? Drop the price. At these discount rates, you've got plenty of room to move. There are still and always will be plenty of buyers in the market, especially hot markets, like i'm in.

Interest payments are tax deductible, and again, its simply a cost of doing this type of transaction. You also forgot to mention homeowners insurance, maintinence, property taxes, etc, etc. If you budget for it, and incorporate it into your purchase price, you'll be fine.

As with any sort of investment, there are associated risks, and an uneducated investor could get taken to the cleaners, but if you've got a good head on your shoulders, its a great time to get in, in my opinion.

**WanganRunner** · 05-23-2007 07:59 AM

Originally Posted by SpencerB

It all depends on your market. Where I am, Marin County, home sales are on the rise, as well as median pricing. This is far from an average location though, but a valid example.

As they say, you make your profit when you buy, not when you sell. Simply put, you need to build in your profit on your purchase price, and if you plan to flip in the short term, make your exit point 5% below FMV, and calculate your profit off that. There are always real estate buyers out there at the right price.

Personally, I find the ROI on quick pre foreclosure flips to be much higher than a buy hold strategy. Its fairly average to see a 100+% ROI on quality deals. Why hold all that equity up in a property, lets say appreciating at the "average" 10%, when you could flip it, pull out your inital capital plus profit, and move to the next deal. This is the way I look at it, but of course, it turns into a lot of work, more risk, etc.

My 2 cents....

I guess if you can catch houses pre-foreclosure, then by all means flip them immediately, there will always be arbitrage there no matter what the market looks like.

The DC residential RE market is in the pooper right now, everyone is selling and very few people are buying.

I agree on the "making your money when you buy" strategy, which is why I advocate buying at historical low-ish points. I haven't ever even looked seriously into foreclosures, so I can't speak with any authority on how easy/common it is to actually score houses for way below FMV.

**dosrotties** · 05-23-2007 10:08 AM

You are also dealing with the general public. Most don't trust you and some would rather lose their home than deal with you. By the time the home owner wants your help you have very little time to preform any miracles. The people that have lots of equity ussualy do not need help. They are out there bet they are few and compitition is cut throat. Most people ar up side down they can't sell. Try to short sale and even then you only get 20-30% savings. Also banks don't like fancy deals, it has to be a straight up deal with money down.
It it was so easy everyone would be doing it only a small percentage get luck and learn the trade.
Finding the property is not the problem. Structuring the deal is.

**jasaunders** · 05-23-2007 10:50 AM

In a majority of cases, you can not inspect foreclosed homes. Because of this, it is often hard to get mortgages without a proper appraisal and home inspection. Beyond that, if you are able to buy the property, often times there is much more repair than anticipated and could drastically increase the costs.

"So a home sits on the market for a few months... big deal. Want to move it faster? Drop the price. At these discount rates, you've got plenty of room to move. There are still and always will be plenty of buyers in the market, especially hot markets, like i'm in."

Big deal? That is thousands of dollars you are losing to interest payments, that is a bid deal. It being tax deductible doesn't mean anything, just that you are going to be paying around 25% less, but still a very large amount. It's not always as simple as dropping the price. You are incorrect in saying there are and always will be plenty of buyers, that is the problem with the current market, there are not a lot of buyers, but there are a lot of sellers. If you are in a hot market, that is an exception and does not reflect the market nationwide.