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7
Ways to Flip a Property
By
William Bronchick
"Flipping" has
been the buzzword of the decade in real estate. And even in
today's post-bubble market, it's still possible to flip
for profit.
Regardless
of where you are living and investing, you can open new doors
to profits by understanding all your options. Today,
I'm going to tell you about seven of the best.
Flipping
simply means buying a property and reselling it quickly, as
opposed to holding on to it long term as a rental. Flipping
comes in several varieties, most of which are profitable (and
legal), some of which are not.
Depending
on the market you invest in, you may want to change the flipping
strategy you use. For example, if you are living in San Diego,
where the market is seeing a considerable slowdown after years
of white-hot appreciation, you might want to limit your risk
by using Flip Strategies #4 and #6, which can be structured
so you see profits without taking ownership of the property.
But if you're living in a value market that is on the rise
(such as Albuquerque, New Mexico), you may be able to increase
your profits by using the traditional "fix 'n flip."
Flip
Strategy #1: Buy, Fix, and Flip
Let's
start with the good old "fix 'n flip." You buy a
property that needs work, fix it up, then resell on the "retail" market
to a person who will live in it. This method is tried and true.
You can easily make $15,000 to $50,000 on one deal, depending
on your market and how good you are at finding bargains.
What
you have to watch out for in fix-and-flips is paying too much
for the property or the repairs. Be very conservative in your
estimates of fix-up costs and the length of time it may take
to resell. Also, make sure you include in your calculations
the cost of paying a real estate agent to sell the property.
Flip
Strategy #2: Buy, Refi, and Lease/Option
Rather
than sell the fixed-up property, you refinance it at its new
appraised value. (If you did the math correctly, you should
have little or no money in the deal.) Then you sell it to a
tenant/buyer on a lease with an option to buy.
The
rent payment from your tenant/buyer should cover your mortgage
payment. (If it doesn't, consider an interest-only or adjustable-rate
loan that is fixed for three years.) When your tenant exercises
his option to purchase the property, you reap a larger profit,
since you don't have to pay a broker's fee. And if the tenant
exercises his option after 12 months, you benefit from a lower
capital gains tax rate.
Flip
Strategy #3: Buy and Flip "As Is"
Don't
like to do rehab work? Consider selling the property "as
is" as a fixer-upper. If the local real estate market
is hot, you should be able to sell it in poor condition just
a little below market. This is especially the case with houses
in "transitioning" neighborhoods.
Make
sure, of course, that you acquire the property cheaply enough
that you can sell it below market quickly and still profit.
Flip
Strategy #4: Wholesale
Strategy
#1, the fix and flip, is very popular. There are a lot of investors
looking for properties that they can rehab and resell to the
retail market. This opens up the opportunity for you to sell
directly to this wholesale market.
You
get a property under contract cheap, and sell it for just a
few thousand dollars more to one of these investors. You don't
do any work on the property. Ideally, you don't even take full
ownership. (You "assign" the sales contract over
to your buyer or set up a "simultaneous closing.")
You won't make nearly as much as the rehabber, but you will
realize your profit quickly.
Flip
Strategy #5: Pre-Construction
In
very hot real estate markets, prices have appreciated as much
as two percent per month. In that type of environment, you
can put a contract on a pre-construction house or condominium
and then flip it to someone else when the development is complete.
If it takes 12 months for the development to be complete and
the condo price is $500,000, you could make $100,000 or more.
Of course, the opposite is also true. You could lose money
if the local economy tanks and you end up with a worthless
condo that you can't sell for more than you paid.
Use
this approach very carefully. As we have seen recently in many
bubble cities, property appreciation is not guaranteed.
Flip
Strategy #6: Scouting
The "scout" is
an information gatherer, so he is not technically a property
flipper. He is the "birddog" who finds potential
deals and sells the information to other investors.
Many
people get started in real estate as a scout for other investors,
because it does not take any cash or prior knowledge to look
for distressed properties. You find a property for sale, gather
the necessary information, and then provide that information
to investors for a fee. The fee will vary depending on the
price of the property and its profit potential. As a scout,
you can expect to make $500 to $1,000 each time you provide
information that leads to a purchase by another investor.
Flip
Strategy #7: Illegal Flipping
This
approach is illegal, so I am NOT advocating it. But you should
know the way it works so you don't get yourself in trouble.
The scheme works as follows: Unscrupulous investors buy cheap,
rundown properties in (mostly) low-income neighborhoods. They
do shoddy renovations to the properties and sell them to unsophisticated
buyers at inflated prices. In most cases, the investor, appraiser,
and mortgage broker conspire by submitting fraudulent loan
documents and a bogus appraisal. The end result is a buyer
who pays too much for a property and cannot afford the loan.
Since
many of these loans are federally insured, government authorities
have investigated this practice and arrested the parties involved.
As a result of all the bad press, much of the public perceives
flipping, in general, to be illegal. But flipping - as I described
it in this article - is NOT illegal. What's illegal is the
loan fraud. The flipping process, itself, is absolutely legal,
very ethical, and highly profitable.
Getting
the Most Out of Your Flip
I
encourage investors (beginners and seasoned alike) to try flipping.
It can be a fun way to make a good deal of money. And, as you
can see, you have several options to choose from.
Having
said that, I do NOT endorse going into flipping without first
understanding the key
elements of the process. First, it's important
to learn more about the flipping strategies outlined above.
Each has drawbacks and benefits. For example, while the "fix
and flip" is the most common, it is also one of the riskiest
and requires the most upfront cash. Once you are familiar with
each technique, you'll be able to choose the one that makes
the most sense in terms of both your financial situation and
a particular property.
You
must have a firm grasp of local real estate values before you
can know a property's true potential. You need to know the
best places to find deals, and how to work with contractors
to get quality work done at affordable prices. And you need
to know how to structure your contracts.
Before
you dive into your first flip, take the time to educate
yourself to ensure that you limit your risk
and make as much profit as possible.
[Ed.
Note: William Bronchick is a nationally recognized attorney,
best-selling author, entrepreneur, and speaker. He has been
featured in Money Magazine, USA Today, CNBC's "Power
Lunch," CNN Money, The Los Angeles Times,
and more.]
* Highly
Recommended *
3
Steps To Finding A Perfect "Fixer-Upper"
If
you’re considering taking on your own Fix-and-Flip, there
are three key steps you need to cover to ensure you see profit:
Know
your market cold. That includes both property values and your
target buyers.
Know
the difference between problems that are cosmetic (relatively
easy to fix) and more serious problems that may be reason to
walk away.
Develop
a system for accurately estimating your renovation costs, including
a realistic timeframe and the holding costs you’ll incur.
Remember, "fixer-uppers" are
not the only way to flip for profit. The truth is, there
are at least six different strategies that could work for you
-- depending on whether your market is in a post-bubble funk
or just heating up. Learn more about how to safely flip
for quick profits of $7,000 to $24,000 or more, and get two
free audio CDs.
Read
on...
Kam
Weiler
Contributing Editor, Main Street Millionaire
Not
All Antioxidants Are Vitamins
By
Al Sears, MD
In Message
#1848, I told you about the "all-star" vitamins
- A and E - that double as powerful antioxidants. But
some of the most effective antioxidants are not classified
as vitamins. Here are two of those powerhouse disease
fighters:
Alpha
Lipoic Acid (ALA)
ALA,
discovered in 1951, plays a vital part in the production of
cellular energy. It has been dubbed the "Universal Antioxidant" because
of its ability to fight free radicals in both the fatty and
water areas of cells. It lowers the risk of atherosclerosis,
lung disease, and neurological disorders by fighting the specific
free radicals that contribute to these afflictions. And it
recycles and extends the life of other antioxidants, like vitamins
C, E, and CoQ10.
A
good source of ALA is red meat. I recommend supplementing with
100 mg of ALA daily.
Coenzyme
Q10
CoQ10,
which is produced naturally in the body, is crucial in the
creation of the energy that cells require to exist. It has
also been found to destroy free radicals in cell membranes,
prevent arteriosclerosis by protecting against the accumulation
of oxidized fat in blood vessels, and successfully treat heart
disease, high blood pressure, and high cholesterol.
CoQ10
is found in fish, red meat, and organ meats (especially beef
liver, kidney, and heart). I recommend supplementing with 30
mg of CoQ10 daily.
[Ed.
Note: For more on the disease-reversing power of CoQ10, check
out Dr. Sears' book The
Doctor's Heart Cure.]
Should
Your Website Have a CAPTCHA?
By
Suzanne Richardson
The other
day, I e-mailed one of our Bootcamp speakers
to get more information about his presentation. In response,
I got an automated reply that asked me to confirm my identity.
(I'd never e-mailed this person before.) To do so, I had to
perform a little test: copying a series of distorted letters
into a designated field.
Charlie
Byrne, ETR's Editorial Director and resident technophile, explained
that these tests are called CAPTCHAs (an acronym for "Completely
Automated Public Turing test to tell Computers and Humans Apart"),
and they have multiple uses. Primarily, they prevent computers
from accessing public sites.
For
instance, when Charlie bought tickets for The Who's annual "Farewell
Tour" (again!) last week, he had to fill out a CAPTCHA
on the Ticketmaster website. The test was intended to keep
scalpers from using computer programs to log in and get sale
tickets faster or in larger quantities than humans can.
Companies
use CAPTCHAs to prevent mass, computerized e-mail attacks.
You'll probably find CAPTCHAs when registering for a free e-mail
account, before voting in an online poll, and on blog sites,
wikis, chat rooms, or online message boards.
According
to CAPTCHA.net, the "distorted letter series" isn't
the only type of test that can be used. You might, for example,
be presented with a distorted audio file and asked to type
the correct sequence in a designated field. Or you might be
shown several random images of the same object (maybe four
different images of a house) and asked to identify the common
object.
Should
you be using a CAPTCHA to prevent computers from accessing
your website?
It's
something to consider. But keep in mind that, like any computer
technology, CAPTCHAs are vulnerable to hackers and technological
innovations. According to "Developer Update," SQL
Server Magazine's e-newsletter, it could be only a matter of
time before mass-mail companies find a way to get past them.
More
important, CAPTCHAs can interfere with the usability of your
site and turn away potential customers. People who have sight
impairments or even those who are slightly dyslexic, for example,
might have trouble with these tests. And though you can offer
an alternative (maybe giving people an 800 number to call ),
it's never a good idea to make your site more difficult for
customers to use.
Food
for Thought: The Unlimited Potential for Creating Wealth
By
Michael Masterson
The
truth is this: Some forms of wealth are limited. Others can
be recreated. Natural resources (coal, oil, natural gas, etc.)
are available in limited supply. Human resources (intelligence,
creativity, and skill) are available in infinite quantities.
Most
of the products of intelligence, creativity, and skill are
also unlimited. As long as there are 100 people living on this
planet, there will be 100,000 possibilities for creating wealth.
A
hundred years ago, there were horses and buggies, telegraphs
and steamships. Now there are cellphones, three-car garages,
and jumbo jets. There are washing machines and refrigerators.
Antibiotics and polio vaccines. TVs and satellites and MRI
machines.
All
this technology was invented, and it has not only enriched
our world but has also made more than a few people wealthy.
Here's
another example, much closer to home. My house was built 10
years ago. It replaced a smaller house, built in the 1960s.
Before that house, this spot was an empty bit of beach. Something
- a very nice house - replaced nothing. That makes my little
piece of real estate part of a vast and growing economy.
See
what I'm saying? Wealth - whether in the form of technology,
ideas, or property - is created all the time.
[Ed.
Note: This article was adapted from a chapter in Michael Masterson's
soon-to-be-released book Seven Years to Seven Figures:
The Fast Track Plan to Becoming a Millionaire, Copyright
(c) 2006 by Michael Masterson. Reprinted with permission of
John Wiley & Sons, Inc.
With
your help, we're looking forward to seeing it zoom to the top
of the best-seller list - so stay tuned. We'll be offering
you a great package of bonuses if you purchase the book as
soon as it's released ... and we'll let you know as soon as
the date is set.]
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Word
to the Wise: Prima Facie
"Prima
facie" (PRY-muh FAY-shee) - Latin for "at first appearance" -
means obvious without the need for proof or further investigation.
Example
(as used by Randall E. Stross in U.S. News & World
Report): "Consumers pick up a CD at the store and
think the difference between the 60 cents it takes to make
a disk and the $16 retail price is prima facie evidence of
gouging. But the dreary economic facts are these: Subtract
all the costs and the overhead that serves to support other
artists under the same roof, and the net profit that the record
company retains is about 59 cents per CD."
