Flipping Property Investment

Fixing & Flipping Properties as an Investment

You've seen or heard of people who buy dilapidated properties at a huge discount, fix them up, and then sell them for a big profit. It's been the romantic dream for millions of people. How romantic is it really?

Most people who get in and do the dirty work say it's not that romantic at all - especially when they're cleaning out the mold, rat remains, or asbestos from an old property. And there's definately nothing sweet about finding unexpected structural problems that can lead to a big financial. However, for those who know what they're doing, fixing and flipping properties can be a big money maker.

Just ask Than & Paul, the stars of A&E's Flip This House, and regular guests of the Real Wealth Show. They made their first million just 18 months after starting. This was a big turn around from their flailing restaurant business in New York City. They did the dirty repair work in the beginning, but soon realized that more money could be made if they systemized the process. They now have teams of bird-dogs (people finding the properties), contractors and marketers in place to do the work for them. Now they own the business, rather than letting it own them.

Most of the mistakes that take place when rehabbing properties happen to beginners - people who didn't take the time to learn the ropes. There are plenty of great books and programs out there to help guide the way, but all too often we hear stories from people who learned the hard way. They saw a house that looked like a deal so they bought it, and discovered afterwards that there was much to learn about values, permits, carrying costs and resale. The most important step is finding the right property.

In today's market, there are many deals, but how do you know it's the right one? Real estate listings often try to make the home seem as inviting as possible, so it may be hard to spot a house that needs some work. You should look through ads and classifieds for key phrases like “needs some TLC” and other indications that the home isn’t in the best condition. You may also want to drive around neighborhoods you are interested in and look closely at the homes for sale. If a home isn't for sale but looks distressed, you can send them a letter or try to meet the owner to see if they'd like to unload the property.

How do you know if it's a deal? You must know the value of properties in that neighborhood. Use only recent comps (comparables - other homes that have recently sold in the area) from properties located within a mile. Even then, be aware that a different zip code, street name or school district can dramatically change the value of a home. Location is the name of the game in any real estate deal. Be wary of busy streets, electrical wires, noisy schools, sewage treatment or landfills in the area.

However, if you get a really low price, you still may be able to make money in these areas. A common mistake newbies make is thinking that just because something is in foreclosure or is bank-owned property, it's a deal. This is not true and can often be the opposite. To be able to make a profit, you don’t want to buy just any run-down home. Try to find a property that’s not in an area where all the homes seem like fixer uppers.

Look for an area where house values are already rising or where other homes in the area are worth substantially more than the home that needs fixing. This will give you the most profit from your investment. You’ll find the best bargains from homes that have been left vacant by their previous owners. You also want to determine if the damage can be fixed reasonably. The best houses to flip easily are those that require mostly cosmetic fixes, like new paint, countertops and carpeting, as opposed to damaged pipes, roofs, or foundations. Once you’ve found a home you think has potential, find out if it will be worth your time and money.

First, get the property inspected and have your contractor walk through to determine the fix-it costs. (or get quotes from several contractors.) Then, talk to an appraiser to find out the value of the house as is and what it could be with the needed repairs. You can also get comps from your real estate agent. This will help you determine if what seems like a great real estate deal really is one. Finally be sure to calculate your holding costs. Determine how long it will take to do the repairs,

how much the debt service will cost during that time, and how long it will take to sell. Your real estate agent can give you an idea of the current "days on market" of homes for sale in the area. While investing in fixer upper properties can be a great investment, be sure to do research and be well prepared before making a purchase.

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