House Flipping Myths
House Flipping Myths
With 30 years experience in investing and flipping houses… and helping new investors get started in the business for the last 18 years… I’ve definitely seen and heard it all. Especially when you consider how many “gurus’ have come and gone over the years touting their newest and greatest way to make money in real estate. And to be completely honest with you… it’s complete bologna. They are telling you what you WANT to hear…. not what you NEED to hear.
So here we go… It’s time to expose the Top 5 House Flipping Myths…
1. Flipping houses for profit is easy money (just like they show you on TV)
Really? Since when is making $30,000 in a just a couple months ever easy? Flipping houses is no exception. You must be tenacious, hard working and creative. Right now real estate market is accelerating. This means the best way to “buy right” is to buy houses off the market, with motivated sellers. That means starting at the beginning of the foreclosure process… work preforeclosures, lis pendens, defaulted owners.
To find these deals you must first identify properties that have equity (loans less than the market value), find and contact the owners, and then work with them to find a solution that gets them out of their mess. You will also want to reach out to owners who are “upside down” (no equity) and help them sell their house under a short sale. To do this you must look daily for deals that match your criteria. Phone call and door knock to find and contact the defaulted owners – sorry guys letters do not work. And then get their attention by showing them you are sincerely concerned about their plight and are willing to work with them to find a solution that is in their best interest.
2. You can flip any house, in any neighborhood
I’d love to agree with this myth, but the reality is it just isn’t true. There are great properties to flip and there are losers.
I have a few rules I will not do. I do not buy on busy streets; it’s too difficult to value the property and they do not sell quickly. I do not buy when the resale amount can only be afforded by the richest people; they are too difficult to move and the buyers are very picky. I do not buy when the neighborhood is too rough; rehabbed kitchens and bathrooms can walk out of a house as fast as I put them in.
I find homes that are in neighborhoods buyers are looking for, that you can move quickly. One of the toughest things to do is to make payments on a house just sitting on the market waiting for a buyer.
Next you must make sure the numbers work.
You have to buy low enough to build in all costs (purchase, money, holding, rehab, selling) and leave a profit for yourself and your investor (if you are using private money). As an investor I strive for 15% profit on every deal. This may seem like a lot, but when you consider your agent is making 6% with no financial risk at all… I would say you are worth 2-3 times that on your deal. So don’t undersell yourself!
3. You save money doing your own rehab
A few words of caution here. It may seem you are saving money, by not paying a general contractor… but let me line out what that savings really costs you…
- Sub contractor bids that come in higher for you than for your general;
- Sub contractors who don’t show up and mess up your schedule;
- Longer rehab time, hence longer hold time;
- Time taken away from your prospecting for your next deal… You can’t do as many deals this way.
Bottom line, using a General Contractor doesn’t cost you money, it saves you money!
4. The more you rehab the house (nicer you make it) the more you make
I can tell you I would be so much richer if this were true. My husband is a wanna be architect. He always sees ways to make a home nicer with a moved wall, added space or different siding. When we began doing flipping houses we thought adding any value put more money in our pocket. It wasn’t until we lost money on a project back in 1995 that we re-looked at this strategy.
The simple answer is to do what you need to do make your deal the most salable in your price range – no more, no less. Keep the colors generic (white sells!). Keep the cabinets and fixtures simple. Stick with the lower price grades. Newly rehabbed homes sell. They don’t need to be designer finishes. Provide a good value and your buyers will come!
5. Resale – Purchase – Rehab = Profit
Really? Is money free? Do Realtors, Title Companies, etc. work for free? There are a lot of transnational costs in real estate, even if you do not use a Realtor to list your property for sale. Have you budgeted each one of them?
This is a another reason why it’s important that you invest in yourself with a good instructional program on how to buy foreclosures, the right way. Mine, “Mastering Foreclosure Investing Training” has a whole lot of very happy new investors who have gone on to successful flip their first (or many more) foreclosure flips for profit. (See here.)
If you thought any of these myths were true, my program will pay for itself on your first deal. Just Start HERE.
Happy Hunting.
Alexis
House Flipping Myths
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