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Oleg
Potiomkin (RA) Hawaii Realty Associates, LLC
Honolulu, Oahu, Hawaii
Direct:
(808) 398-9987 Fax: (808) 538-8081 E-mail:
info@hawaii-realty.com
Seven Ways to
Flip a Property
by Attorney William
Bronchick
"Flipping" is
the buzzword of the year in real estate - flipping books, flipping
articles in the newspaper, and even flipping shows on TV! What is
flipping, how does it work and how you can profit?
Flipping simply means
buying a property and reselling it quickly, as opposed to holding on to
a property long term as a rental. Flipping comes in several
varieties, most of which are legal and profitable, some of which are
not.
Flip Strategy #1: Buy,
Fix and Flip
Let's start with the most
common form - the good, old "fix 'n flip". This process
involves buying a property that needs work, fixing it up, then selling
on the "retail" market, that is, to a person who will live in
the property. This method is tried and true, and works very well.
You can easily make $15 - $50k on one deal, depending on your market and
how good you are at finding bargains.
The danger in fix and
flips is either paying too much or underestimating repairs. Be
very conservative in your fix-up costs and length of time it may take to
resell. Also, make sure you include in your analysis the cost of
paying a real estate agent to sell the property.
Flip Strategy #2: Buy,
Refi & Lease/Option
Rather than sell the
fixed up property for all cash, sell for terms. Once you have
completed the rehab, refinance the property at its new appraised value.
If you did the math correctly, you should have little or no money in the
deal. Sell the property on a lease
with option to buy. The rent payment from your tenant/buyer
should cover your mortgage payment (if not, consider an interest-only or
adjustable rate loan that is fixed for 3 years). When your tenant
exercises his option to purchase, you reap a larger profit, since you
don't have to pay a broker's fee. If the tenant exercises his
option after 12 months, you benefit from a lower capital gains tax rate.
Flip Strategy #3: Buy
& Flip "As Is"
Don't like to do fix-up
work? Consider selling the property "as is" as a light
fixer upper. If the local real estate market is hot, you should be
able to sell the property 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
sufficiently cheap 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, which means there are a lot of investors looking
for rehabs. You can buy the property cheap and sell it for just a
few thousand dollars more to another investor without doing any work.
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 are appreciating as much as 2% per month. If you
time things right, you can put a contract on a pre-construction house or
condominium, 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 in one year! Of course, the opposite is also true - you could
end up losing 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...
Flip Strategy #6:
Scouting
The
Scout is an information gatherer, so not technically a property flipper.
He is the "bird dog" who finds potential deals and sells the
information to other investors. Many people get started as a Scout for
other investors because it does not take any cash or prior knowledge to
look for distressed properties. The Scout finds a property for sale,
gathers the necessary information, and then provides this information to
investors for a fee. The fee will vary depending on the price of the
property and the profit potential. The Scout can expect to make five
hundred to one thousand dollars each time he provides information that
leads to a purchase by another investor.
Flip Strategy #7:
Illegal Flipping
OK, I am not advocating
this approach, because it is illegal. Illegal property-flipping
schemes work as follows: unscrupulous investors buy cheap, run-down
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 that paid too much for a house and
cannot afford the loan. Since many of these loans are federally insured,
the government authorities have investigated this practice and arrested
many of the parties involved. As a result, the public perceives is
flipping to be illegal.
The fact is,
"flipping" - as I described in the beginning of this article -
is NOT illegal. Loan fraud in the process of flipping is what is
illegal, so don't confuse the two. The other six ways to flip are
very legal, very ethical and very profitable!
About the
Author . . .
William Bronchick, CEO of Legalwiz Publications, is a
Nationally-known attorney, author, entrepreneur and speaker. Mr.
Bronchick has been practicing law and real estate since 1990, having
been involved in over 600 transactions. Visit his site at http://www.LegalWiz.com
Excellent
Service, Outstanding Results!
Oleg Potiomkin (RA) Hawaii Realty
Associates, LLC
Ali'i Place, 1099 Alakea
Street, Suite 1520, Honolulu, Oahu, HI 96813
Direct: (808) 398-9987 Fax:
(808) 538-8081 E-mail: info@hawaii-realty.com
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