The Irreverent Guide to a House Flip 1
75Step One
Let's assume you've stashed money aside and you're now ready to invest it. This is another turning point in managing your money. There are many ways to invest dollars. Some investments will be good for you, others not so good and not for the reasons you think.
How you put dollars to work depends on six factors, how much money you have to invest, how much money you earn, your age, your experience, your attitude and your energy level.
One type of investment that's really popular today is flipping houses. This can be a wonderful option, but it is not without some serious risks. When I worked with real estate investors, I met a young couple that came to me wanting to buy a house that they intended to flip. They were all excited because they had seen a show on TV that expounded on the ease and quick money they could make with a flip. I talked to them long enough to determine that they shouldn't buy the house and refused to sell it to them (Yes there are real estate agents that have ethical standards.) So, they went to another realtor and bought the house anyway. Three months later, the house was back on the market and I found out the couple had lost everything they had invested in the house and were now just trying to bail themselves out to avoid bankruptcy.
This couple had enough money for the down payment, but because they lacked experience, they neglected to consider the monthly cost of owning the house and they underestimated the cost to refurbish it. That combination was why I was confident they would fail.
When investing in houses to flip, you really need to know what you're doing and you better have the money to do it. If this is an investment option that you want to pursue, you need to take a hard look at the facts. The first thing you need to look at is how much cash you have available. In addition to the down payment and closing costs, you need to have enough money set aside to cover the payments for at least 6 months after you anticipate the refurbishing will be completed. That allows your realtor 90 days to sell the house. (This is assuming the selling price is right, if it's priced too high, it will take longer.) Once you have a buyer it can take another 90 days to close the deal. During this time you're going to have to make payments.
There are a number of ways to buy a house, but for our purposes we'll assume you have a good relationship with a lender and you're going with a conventional loan (A conventional loan simply means it is not insured by the government. They usually close faster and with less hassle.) If you have your sites set on a house that's, say $200,000 and you buy it at 6.5% interest. Based on a 30 year mortgage your monthly payment will be $1,264.14 not including taxes and insurance. If you buy a house for $100,000 at 6.5% on a 30 year mortgage your payments will be $632.07 not including taxes and insurance. This will give you an idea of how much money you need to set aside for the mortgage portion of your flip.
The next time we'll take the next step to a successful flip.
Patty, the whole affair of foreclosure purchases is complex and will be covered in my next series of hubs so watch this site. However, in answer to your questions: Whether you can deal with the owner or the bank depends on whether the foreclosure process is. If the bank is sending nasty-grams to the owner, but has not started the process, you can still deal with the owner. If the bank has actually started the foreclosure, the water get's muddy, but usually you will need to deal with the bank that is, if they will deal with you at all. Unfortunately, banks don't usually deal with individuals, they go through real estate agents. And yes, you will need to pay off the underlying mortgage. There are ways around this, but they are risky. Like I said, I'll be covering all that there stuff shortly.
Vic, thank you for your answer , In my research preforclosures are the way to go but they are as you said complex , I still cant figure it out. All of the websites I Have researched do not give straight out answers like you. Thank you again. I have thought about flipping long before flip this house was even thought of, they make it look easy, thats not reality unless your ready like you pointed out in your guide to a house flip. My husband and I now think the best way to go is to buy a two family, the market is bad and at least the mortgage would get paid if we were to get into trouble. I Know how to flip a house in the sense of how it looks and so forth and what to do, now we are the point of how to finance the house, what is the best loan to get, and what it takes to be a landlord. We did not want the headache of being a landlord but in todays market it makes more sense. It is a risky business and not one that I will risk my own house in the process. Please dont leave this web site because you are the first intelligent person that really put things the way they really are. Thank you again!
You finance a rental much the same as your home. You can go owner contract or through a bank or mortgage company. Be sure and shop around. A LOT! Watch the fees you are charged. Remember the golden rule of business. Everybody wants to increase that bottom line profits.
To manage your own property is something only you can determine. I personally recommend agains it for several reasons. 1. Property owners tend to be more lenient than property managers (Good property managers can be asses and we love them that way.) 2. Tenants don't expect property managers to be nice so they don't take advantage. 3. If things get ugly, the tenant may be less likely to take revenge on you by destroying your property. 4. Property managers, at least good ones, keep a sharp eye on what's happening to your property with periodic inspections. Tenants expect this of a property manager, but may take offense if you try to do it. 5. Property managers don't get personal with the tenants. Property owners sometimes don't remember that the tenant isn't a needy relative. 6. It's easier for a property manager to evict a tenant than it will be for you.
Personally, I'm a good investor, but a lousy landlord. I would use a property manager, but I'd make darn sure he/she was a good one. Some are no better than the owner at managing properties. I was bit once this way, but never again. Find out how long the manager has been in business. Talk to owners that have used the manager. Check with local real estate firms for recommendations. Ask your realtor to give you the inside scoop on a manager (watch for a conflict of interest.)
Vic, thank you for your answers. I appreciate them .Thank you!
we invest in houses..usually old ones that we restore because I have a thing for old houses.. :) This is great advice.
Thx for the post Vic.
Hi, this is a really informative lens but I have just one question - what is a house flip? I'm from the UK and haven't come across the term before. Is it the same process we call buy-to-let?
Thanks for the info : )
A house flip is when you buy a home with the intent of reselling it as soon as all necessary renovations, f any, are performed. Usually the faster it's back on the market, the better. Think 3 to 6 months. Sometimes it doesn't work out that way, but that's generally the goal.
Hope this helps.
It does, thanks. Maybe the term will catch on over here soon!
check out www.learntofliprealestate.com for real a real guide. by far the best manuals out there for the money, hands down...
patty 5 years ago
Great info WOW, in my 5 month research on flipping you have finially given me the info I was looking for. But I still need the info on how to buy a preforclosure what do I need to do? I know i need a lawyer, papers signed, a appraisel, with bug inspection, how does this work with the bank? do I have to pay the bank back what is owed on the previous mortgage or can i just make a deal with the seller and forget the bank?