Posts Tagged ‘flip’
Know the Hood
Don't go overboard upgrading a flip
(This is the third of a multi-part series about real estate flipping. My introductory post covered the basics.)
A quick review, flip investors typically try to make at least 20 percent profit. Underestimating quiet costs and over-improving the property often chew big slices of the profit pie. Later I’ll delve deeper into specific types of improvements to consider, those with good bang for the buck, but here I devote to your initial mindset as you begin researching the neighborhood or immediate area (i.e. within one mile) around the subject property to gauge how much you should spend improving your flip. (An appraiser or real estate agent with a proven track record of understanding investment property can be valuable analyzing comparable home data and features before construction spending begins.)
You will eventually sell at market value, which will be influenced most by pure supply-and-demand conditions of the local market (affected by household income, employment) and the desirability of the location of the subject property (the flip home). But as you’re planning the improvements for your flip, you must know the neighborhood, specifically the individual homes and how the flip could benefit or suffer from either Progression or Regression. In other words, you don’t want to become the biggest/nicest house on the block, you don’t want to over-improve the flip. And it might not be such a bad thing to be the smallest/modest house on the block.
LOUD quiet costs
Quiet costs can hose the deal
(This is the second of a multi-part series about real estate flipping. My introductory post covered the basics.)
Flip investors generally try to clear at least 20 percent profit on a deal. In other words, your net piece of the money pie will be 20 percent AFTER ALL EXPENSES. Your asking price after acquiring and improving the house should not be higher than prevailing market value given comparable homes of similar age and finished square footage within the neighborhood or immediate area.
I could write a book about pricing but that’s not the focus of this blog post; however, when it comes time to price (and I suggest you research a likely price BEFORE you make a purchase offer), you’ll need to rely on a real estate agent, an appraiser or yourself for researching current (less than 6 months old) values for the neighborhood/area of the flip property. So while this post is not about how to price accurately, I will share how to avoid pricing inaccurately. Your asking price is not Acquisition Cost + Improvement Cost + Target (fingers crossed) Profit = Price. That would be a recipe for no profit, maybe a big loss and/or your new second job as landlord if the place doesn’t sell.
Flipping for Actual Profit
(This is the first in a multi-part series over the next few weeks.)
I recommend you stop while you’re monetarily ahead if your attitude about real estate investing is similar to how you felt tumbling down the stairs Christmas morning. Get out now before you blow serious money and time. Like any form of investing, success is contingent on a studious and disciplined approach. I don’t want to begin this series with a negative vibe talking down to you; I merely hope to discourage the dreamers. The Housing Bubble is full of stories of folks who watched a late night infomercial, decided a fortune awaited and ran out the door seeking riches with no-money-down “strategies”. About the only people who made out in those deals were the producers and performers on the infomercials.
So I’ll begin this series about real estate “flipping” by explaining what it is NOT. Flipping is NOT buying a home, holding it and hoping to sell for profit in the future. That’s called speculation or gambling and it’s how a lot of so-called investors lost their shirts during the boom. For those who did actually succeed in making money by “buying low, selling high” banking a net profit as a result of market value appreciation, that’s called good fortune or luck. And many times those same “investors” didn’t actually make as much money as they thought because they didn’t account properly for taxes and holding costs, which is a mistake even seasoned, bona fide real estate investors occasionally make when local market dynamics throw them a curve. (I’ll cover a down market in later posts.)
