17,99 €
Mehr erfahren.
- Herausgeber: John Wiley & Sons
- Kategorie: Ratgeber
- Sprache: Englisch
Buy it, fix it, flip it! Are you a wanna-be flipper looking to get the property, get the job done, and get out--all while maximizing your profit? Not just another house-flipping book, this hands-on guide shows you how to roll up your sleeves and find the perfect property, secure a mortgage, negotiate with condo associations, increase curb appeal, and much more. Flipping a house is more than just buying, updating, and selling. To be successful, you have to be a bit fearless, highly organized, and, at times, creative. This new edition of Flipping Houses For Dummies gives you practical guidance on the risks and rewards of flipping properties; helps you determine whether you have the time, energy, cash, and other resources to be successful; and then conveys the expert knowledge you need to succeed in a very competitive market. * Find, fix, and sell houses for profit * Score bank-owned and foreclosed properties * Identify the best improvements for maximum ROI * Get quick makeover solutions If you're ready for hard work and big profits, start flipping!
Sie lesen das E-Book in den Legimi-Apps auf:
Seitenzahl: 604
Veröffentlichungsjahr: 2017
Ähnliche
Flipping Houses For Dummies®, 3rd Edition
Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com
Copyright © 2017 by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.
Trademarks: Wiley, For Dummies, the Dummies Man logo, Dummies.com, Making Everything Easier, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc., and may not be used without written permission. All other trademarks are the property of their respective owners. John Wiley & Sons, Inc., is not associated with any product or vendor mentioned in this book.
LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: WHILE THE PUBLISHER AND AUTHOR HAVE USED THEIR BEST EFFORTS IN PREPARING THIS BOOK, THEY MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF THIS BOOK AND SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CREATED OR EXTENDED BY SALES REPRESENTATIVES OR WRITTEN SALES MATERIALS. THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BE SUITABLE FOR YOUR SITUATION. YOU SHOULD CONSULT WITH A PROFESSIONAL WHERE APPROPRIATE. NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM.
For general information on our other products and services, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. For technical support, please visit https://hub.wiley.com/community/support/dummies.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Library of Congress Control Number: 2017934019
ISBN 978-1-119-36307-1 (pbk); ISBN 978-1-119-36311-8 (ebk); ISBN 978-1-119-36310-1 (ebk)
Flipping Houses For Dummies®
To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Flipping Houses For Dummies Cheat Sheet” in the Search box.
Table of Contents
Cover
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1: Getting Started with House Flipping
Chapter 1: Brushing Up on the Basics
Grasping the Concept of Flipping
Flipping Legally and Ethically
Determining Whether You Have What It Takes to Flip
Devising a Reliable Flipping Strategy
Building an All-Star Team
Finding and Buying a Flippable House
Rehabbing Your Fixer-Upper
Profiting from Your Venture
Chapter 2: Do You Have What It Takes to Flip?
Tabulating Your Time Budget
Shaking Your Piggy Bank
Taking Your Personality Pulse
Gathering the Essential Tools of the Trade
Chapter 3: Devising an Effective Flipping Strategy
Surveying Different Strategies
Drawing Up a Detailed Plan in Advance
Plan B: Surviving a Flip That Flops
Chapter 4: Building Your Dream Team
Teaming Up with a House Hunter — a Quality Real Estate Agent
Recruiting Moneymen (and Women)
Consulting a Title Company and an Insurance Agent to Cover Your Back
Locating a Valuable Appraiser
Adding a Real Estate Lawyer to the Roster
Lining Up a Home Inspector
Hiring Contractors and Subcontractors
Chapter 5: Securing the Funds to Fuel Your Flips
Recognizing the Importance of Being a Cash Buyer
Tapping Your Own Resources for Cash
Leveraging the Power of Other People’s Money
Using Conventional Financing (for Longer-Term Real Estate Deals)
Part 2: House Hunting with an Eye for Flipping
Chapter 6: Scoping Out a Fertile Neighborhood
Pinpointing House Flipping Hot Spots
Sizing Up the Local Real Estate Market
Comparing Neighborhoods
Considering Other Neighborhood Factors
Chapter 7: Hunting for Houses in Your Target Area
Focusing Your Search on Affordability
Digging Through Property Listings, Ads, and Publications
Mining Special Markets for Dontwanners
Chapter 8: Closing In on Foreclosure Properties
Getting Up to Speed on the Foreclosure Process
Brushing Up on Local Rules and Regulations
Picking Your Point of Entry into the Foreclosure Process
Purchasing Foreclosure Properties Step by Step
Advertising to Generate More Leads
Chapter 9: Scoping Out Properties in Special Markets
Acquiring Properties in Probate
Scooping Up Bargains in Bankruptcy
Finding Government-Owned Properties
Buying Properties at Tax Sales
Part 3: Evaluating Properties and Crunching Numbers
Chapter 10: Researching Distressed Properties
Creating a Property Dossier
Checking Out the Property
Following the Paper Trail
Chapter 11: Inspecting the Property and Estimating Rehab Costs
Packing for Your Inspection Mission
Finding the Perfect Candidate for a Quick Makeover
Assessing Potential Curbside Appeal
Taking a Big Whiff, Inside and Out
Inspecting the House for Big-Ticket Items
Discovering Some Promising Features
Arriving at a Ballpark Figure for Repair and Renovation Costs
Chapter 12: Calculating Your Profit and Maximum Purchase Price
Doing the Math to Ensure a Profitable Flip
Estimating a Realistic Resale Value
Accounting for Expenses
Chapter 13: The Art of Haggling: Negotiating a Price and Terms
Planting the Seeds for Successful Negotiation
Making an Offer They Can Refuse (But Will Consider)
Tending to the Details: Inspections, Appraisals, and Walk-Throughs
Closing the Deal
Part 4: Fixing Up Your Fixer-Upper
Chapter 14: Prioritizing and Planning Your Renovations
Developing an Eye for Home Improvements
Prioritizing Your Projects
Delegating Duties
Drawing Up a Tentative Budget
Coming Up with a Game Plan
Chapter 15: Giving Your Property a Quick Makeover
Sprucing Up the Yard
Freshening the Façade
Touching Up the Interior
Chapter 16: Perking Up the Curb Appeal
Revitalizing the Landscape
Tidying Up the Driveway and Walkways
Making Entryways More Inviting
Refreshing the Outside Shell of the House
Glamming Up the Garage
Chapter 17: Dazzling the Crowds with Updated Kitchens and Baths
Giving Kitchen Cabinets, Countertops, and Sinks a Facelift
Modernizing Kitchen Appliances
Updating the Bathrooms
Chapter 18: Tackling Moderate Makeovers
Installing Replacement Windows
Replacing Drab, Weathered Doors
Putting on Your Own Floor Show
Chapter 19: Reconfiguring Spaces and Other Structural Overhauls
Attending to Essential Structure and Infrastructure Repairs
Fiddling with the Floor Plan … or Not
Identifying Load-Bearing Walls
Maximizing the Use of Existing Space
Building New Rooms from Scratch
Adding a Deck or Patio
Part 5: Cashing In: Realizing Your Profit
Chapter 20: Considering Your Options: Cash or Cash Flow?
Setting a Goal: Cash or Cash Flow
Cashing Out: Selling the Property
Exploring Cash-Flow Possibilities
Chapter 21: Marketing Your Home
Harnessing the Power of a Real Estate Agent to Market and Sell Your House
Setting an Attractive Asking Price
Staging a Successful Showing
Offering to Help Secure Attractive Financing
Becoming a Real Estate Marketing Maven
Chapter 22: Negotiating the Sale to Maximize Your Profit
Comparing Seemingly Similar Offers
Mastering the Art of Counteroffers
Shuffling Papers and Other Legal Stuff at Closing
Chapter 23: Trudging through Some Taxing Issues
Estimating the Tax Man’s Take from Your Flipping Profits
Maximizing Tax Savings from the Sale of Your Principal Residence
Slashing Your Capital Gains through Careful Deductions
Deferring Taxes: Rolling Your Gains into Your Next Purchase
Selling Your Home at a Loss (Ouch!)
Paying Income Tax: When Flipping Houses Becomes Your Occupation
Part 6: The Part of Tens
Chapter 24: Ten Ways to Find Dontwanners
Cruising the Neighborhood
Teaming Up with a Great Real Estate Agent
Checking Classified Ads and Online Listings
Skimming Foreclosure Notices
Monitoring Tax Sales
Scoping Out Bank-Owned Properties
Probing Probate Properties
Digging Up Houses in Bankruptcy
Sifting through the Government’s Stash
Networking and Advertising for Leads
Chapter 25: Ten Signs of a Great House Flipping Opportunity
The Location Is an Obvious Hot Spot
Nobody’s Home
The “For Sale By Owner” Ad Is Shrinking
The Seller Is Highly Motivated to Be Freed from the Burden of Ownership
The House Is Ugly Outside
The House Is Ugly Inside
The Decor Is Outdated
The House Has Character
The House Has Undeveloped Living Space
The Property Backs Up to Nothing
Chapter 26: Ten House Flipping Blunders
Falling for a Scam
Speculating on the Housing Market
Waffling on an Obviously Good Deal
Backing Yourself into a Contractual Corner
Failing to Inspect the Property before Closing on It
Assuming the Title Is Clear
Underestimating the Cost of Repairs and Renovations
Doing Shoddy Work to Save Money
Over-Improving a Property
Forgetting to Pay the Taxes
About the Authors
Advertisement Page
Connect with Dummies
End User License Agreement
Guide
Cover
Table of Contents
Begin Reading
Pages
i
ii
v
vi
vii
viii
ix
x
xi
xii
xiii
xiv
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
261
262
263
264
265
266
267
268
269
270
271
273
274
275
276
277
278
279
280
281
282
283
284
285
286
287
288
289
290
291
292
293
294
295
296
297
298
299
300
301
302
303
304
305
306
307
308
309
310
311
312
313
314
315
316
317
318
319
320
321
322
323
324
325
326
327
328
329
330
331
332
333
334
335
336
337
338
339
340
341
342
343
344
345
346
347
348
349
365
366
367
368
369
370
Introduction
Maybe you know somebody who buys and sells houses and makes as much money on a single transaction as you make in a year. Or perhaps you caught an episode of one of those house flipping TV shows that demonstrate just how easy it is to buy a house for $250,000, fix it up for another $75,000, and sell it for a half million bucks in a matter of days. Now, you want in on the action. You want your slice of that capitalistic cannoli.
But where do you start? You can’t imagine where you’d be able to get your mitts on the cash you’d need to finance a flip. You have no idea where to start looking for undervalued properties, and even if you could find a suitable house to flip, your expertise in the field of home repairs is limited to plunging the toilet. Surely you’re not qualified to invest in the complicated world of real estate.
Well, it’s time to stop all the negative self-talk and start reading Flipping Houses For Dummies. I started out with $900 that my grandmother gave me in the early 1970s. From the ripe old age of 19 to the present day, I’ve flipped one house after another and earned millions of dollars along the way. It wasn’t easy. Some of my flips flopped. I didn’t profit from every transaction. I did, however, have a plan in place and the sticktoitism (pronounced stick-to-it-ism) to successfully execute it. By following through, I was able to succeed, and so can you. (By the way, sticktoitism describes the determination and dogged perseverance required to build wealth in real estate. I could use stick-to-itiveness, which actually appears in the dictionary, but I like my word better.)
About This Book
Unlike other books, TV shows, and late-night-TV gurus, this book doesn’t promise an easy, risk-free way to score quick cash by flipping houses. Instead, it takes an honest look at the practice of flipping houses.
In this book, I reveal what I’ve learned in more than 40 years of flipping houses and working with buyers, sellers, and other real estate investors and professionals. I show you how to do everything from building a team and securing the cash you need to finance your venture to finding undervalued homes and negotiating the price and terms that improve your chances of selling at a profit. I guide you through making renovation decisions that promise to deliver the most bang for your buck, and I show you how to spruce up a home to draw in more potential buyers.
I don’t want to see you get in over your head or blow your entire life savings on a failed real estate investment, so throughout this book I provide plenty of time- and money-saving tips, cautions to help you avoid catastrophe, and pointers to keep your projects within budget and on schedule. I steer you clear of risky, unethical, and illegal ventures and encourage you to wade out slowly and remain well within your comfort zone. After you successfully flip a few easy properties, you quickly become aware of when you’re ready to take on bigger projects, and by that time, you no longer need my advice.
My goal is to help you decide whether house flipping is for you, and, if it is, I provide you with the knowledge and insight you need to succeed. Flipping houses can be one of the most rewarding and profitable ways to invest your time and money. This book shows you how to do it right, minimize risks, and maximize your potential profit.
Although I encourage you to read every single word of this book from start to finish, you’re welcome to skip around to acquire your knowledge on a need-to-know basis and to completely skip the sidebars (in shaded boxes). Although the sidebars may be too fascinating to ignore, they’re not essential.
One brief note: Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just tap the web address to be taken directly to the web page.
Foolish Assumptions
If you’re reading this book, I assume you’re a homeowner. I wouldn’t buy a car from a car salesman who didn’t drive, and I wouldn’t buy a house from someone who rents an apartment. When you own your own place, you pick up some street smarts about the value of a home, its emotional effect on people, its value as an investment, and the work required to properly maintain it. If you’re not a homeowner, sell this book and put the proceeds toward a down payment on a house. Come back in a couple of years. I’ll be waiting for you.
Other foolish assumptions I’ve made include the following:
You’re of sound mind and body.
You can be a little kooky and out of shape, but if you can’t make rational decisions or talk coherently on the phone, house flipping may not be for you.
You’re interested in residential, not commercial, property.
Assuming you’re new to this house flipping thing, focus on the type of property you would buy as a homeowner. Later, when you’re more experienced, you can venture into the world of commercial real estate.
You’re prepared to learn from your mistakes (and mine).
I can’t guarantee that you’ll profit from your first flip, but I can guarantee that you’ll make mistakes. Consider them an essential part of your education. This book was made possible by all the mistakes I’ve made. Without those mistakes, I’d have little wisdom to impart. The more you take away from the mistakes I made, the fewer mistakes you have to make yourself.
You want to flip properties legitimately.
Con artists often flip properties to scam buyers and lenders. I’m not a con artist, and I denounce illegal, unethical flipping. By flipping legitimately, you stand to earn much more than a low-life con artist ever will, and you keep your reputation and integrity intact.
Icons Used in This Book
Throughout this book, icons in the margins highlight different types of information that call out for your attention. Here are the icons you’ll see and a brief description of each.
I want you to remember everything you read in this book, but if you can’t quite do that, then remember the important points flagged with this icon.
Tips provide insider insight. When you’re looking for a better, faster way to do something, check out these tips.
“Whoa!” When you’re buying and fixing up a house, it’s easy to get a little carried away and blow your entire budget on garden gnomes. Before you get too carried away or engage in any riskier-than-average house flipping endeavor, read the text marked with this icon for advice on when and how to proceed with caution.
Beyond the Book
In addition to the abundance of information and guidance on flipping houses that I provide in this book, you also get access to even more help and information online. Go to www.dummies.com and search for “Flipping Houses For Dummies Cheat Sheet” for a free cheat sheet that accompanies this book. It includes a checklist for revamping a quick-flip property, offers tips for financing flips — and more.
Where to Go from Here
Think of this book as an all-you-can-eat buffet. You can grab a plate, start at the beginning, and read one chapter right after another, or you can dip into any chapter and pile your plate high with the information it contains.
If you’re looking for a quick overview of house flipping, check out Chapter 1. Before you even start house hunting, check out Chapter 4 to discover how to build a strong support network and Chapter 5 to find out how to finance your flip — you need cash and plenty of it to flip a house. Chapter 12 helps you determine how much you can afford to pay for a property to increase your odds of walking away with a profit. And the chapters in Part 3 are indispensable in helping you track down potentially profitable properties and negotiate the purchase. Wherever you choose to start, you’ll find plenty of useful information and guidance.
Part 1
Getting Started with House Flipping
IN THIS PART …
Get up to speed in a hurry on the process of flipping houses.
Flip houses the right way and avoid fraudulent flipping schemes.
Find out whether you have what it takes to flip houses in terms of time, money, and mindset.
Explore a variety of house flipping strategies ranging from buy-fix-and-sell to buy-hold-and-lease.
Build a dream team of real estate professionals, lenders, and contractors to expedite your flips and cover your back.
Get your mitts on some cash to finance your flips by using your own and other people’s money (OPM).
Chapter 1
Brushing Up on the Basics
IN THIS CHAPTER
Understanding the concept and challenges of flipping
Flipping the right way — legally and ethically
Developing a winning strategy and the right connections
Marketing and staging a house to maximize your profit
Flipping sounds easy. You can flip a pancake. You can flip a coin. Without too much effort, you can even flip out. Flipping a house, though, requires a level of knowledge, expertise, and sticktoitism unrivaled by any of these mindless tasks. It requires access to cash, and lots of it. It demands time, energy, vision, attention to detail, and the ability and desire to network with everyone — from buyers and sellers to real estate professionals, contractors, and lenders.
In this chapter, I offer a broad overview of what flipping houses is all about. I introduce the overall strategy of flipping houses — buy low, renovate, and sell a property at fair market value to earn a fair market profit. I also reveal the difference between flipping the right way — legally and ethically — and flipping the wrong way — ripping off buyers, sellers, and lenders for a quick wad of cash.
Grasping the Concept of Flipping
In investment circles, the secret to success is cliché: buy low, sell high. This same principle applies to flipping houses. To succeed, you buy a house at 20 percent to 50 percent below market value, repair and renovate the property, and then turn around and sell it at market value. That three-step process — buy, fix, and sell — certainly sounds easy enough, but each step carries with it a host of unique challenges, as I point out in the following sections.
Spotting distressed property
Homeowners don’t exactly line up around the block waiting to sell their homes for less than they’re worth. As a house flipper, your job is to hunt for the homes in your area that are dontwanners, as in “the owners don’t want ’er.” These orphan homes usually appear bedraggled. The yard looks like a weedy wasteland, the gutters are hanging off like old false eyelashes, the paint’s peeling, and the interior is completely trashed. These properties are often referred to as distressed, and their appearance indicates that their owners are distressed as well. Their dream home has become a nightmare.
When homeowners need to shed the burden of home ownership, they may not have the time and resources to repair and renovate it, place it on the market, and wait for months or even a year for a buyer to make a reasonable offer. In such cases, they’re often willing to sell at a greatly reduced price to a serious buyer who has the financial resources to close the deal. How do you discover opportunities like this? In Part 2, I point out several techniques for discovering distressed properties and their distressed owners.
Doing your homework
Flipping houses is a risky venture, but you can minimize risk and maximize profit by doing your homework:
Research the property.
If you’re buying a property in foreclosure, probate, bankruptcy, or a similar situation, research the property carefully to make sure you know what you’re buying. Research includes a visit to the property and to the Register of Deeds office to research the title and other key documents. See
Chapter 10
for details.
Estimate costs of repairs and renovations.
Knowing how much you’re probably going to need to spend to make the property market-ready is key to knowing how much you can afford to pay for the property and still earn a profit. In
Chapter 11
, I explain how to inspect a property with an eye for repairs and renovations and estimate your rehab costs.
Calculate your maximum purchase price.
Before you make an offer on a property, you need to calculate the most you can pay for it to earn the desired profit
after
costs, including closing costs, renovation expenses, holding costs, and agent commissions. In
Chapter 12
, I walk you through the calculations.
Negotiate the price and terms in your favor.
The maximum you
can afford
to pay for a property is probably not what you
want
to pay; you want to pay as little as possible. In
Chapter 13
, you discover various strategies and techniques to negotiate a better price and terms.
Making a few minor (or major) alterations
When you buy a house at a bargain-basement price, it usually requires some tender loving care to make it marketable. In some cases, a thorough cleaning, a fresh coat of paint (inside and out), and new carpeting do the trick. In a matter of days or a couple of weeks, and with a small investment, you can often boost the value of a home just by making it look brand-new again.
Other houses require more extensive renovations. You may be able to convert unused attic or porch space into a bedroom; knock out a wall or two to combine the kitchen, dining room, and living room into a great room; install new windows; or even build a second story. The chapters in Part 4 cover everything from quick-flip cosmetic jobs to extensive renovations and provide plenty of tips to stay on budget.
Avoid the temptation to over-improve a house. You may be able to convert a $100,000 house into a $1 million mansion, but if a buyer wants a $1 million mansion, she’ll buy a house in a neighborhood with $1 million homes.
Reselling your rehabbed property
The old adage of house flipping is that “You make your money when you buy.” But you realize your profit only after selling the house. Assuming you purchase the property at the right price, avoid overspending on repairs and renovations, and flip in a relatively stable market, you should have no trouble selling the house at a profit simply by selling it at or near market value. (See Part 5 for details.)
To sell the house quickly at a fair price, set a price that’s competitive with the prices of comparable houses in the same neighborhood. If your asking price is too high, holding costs (interest, insurance, utilities, maintenance, and so on) will chip away at your profit over time.
Flipping Legally and Ethically
In real estate circles, the word flip is often construed as just another four-letter word. Utter the “F word” at a real estate conference or seminar, and you’re likely to spend your lunch break at a cozy table for one. The reason for this cold shoulder from the real estate community is that way back in September 2001, the U.S. Department of Housing and Urban Development (HUD) released FR (Final Rule)-4615 Prohibition of Property Flipping, which made “flipping” illegal.
So, why am I writing a book that promotes this illegal activity? Because the word flip has a double meaning, as the following sections reveal.
Flipping illegally
Criminal minds have invented countless ways of milking the real estate industry, and one way is to flip houses. This sinister type of house flipping typically relies on some form of fraud — lying or misrepresenting information. In some cases, the con artists hook up with crooked appraisers who artificially inflate home values and then sell overpriced homes to ill-informed buyers.
Another way con artists scam the system through flipping is to build a team of buyers, none of whom intends to own the property for any length of time. They buy homes from one another, increasing the price with each sale. False appraisals or crooked appraisers make the price hikes look legitimate, and corrupt loan officers often expedite the loan-approval process. As the value of the property increases on paper, the amount of equity in the property increases. The final buyer takes out a whopping loan to pay the previous owner and then defaults on the loan. The team splits the proceeds, sticking the lender with the bill and leaving a legacy of foreclosures and vacancies.
The dark side of flipping destroys credit ratings, raises interest rates, and ruins neighborhoods. Over the long haul, it threatens to squash the American dream of homeownership. It’s unethical, immoral, and illegal. And it’s not what this book is about.
Flipping legally: Buy, fix, and sell
Flipping the right way is a perfectly legitimate strategy for making money in real estate. You buy a property below market value, fix it up, and sell it for more than you invested in it. Do it well and you can earn a handsome profit. Make a serious blunder and you suffer a loss. This fix-it-and-flip-it approach has a positive effect on the real estate market. It increases property values, improves neighborhoods, and provides quality housing for those who need it. It’s the American way — capitalism at work.
Throughout this book, I encourage you to flip the right way, and I caution you to avoid the gray areas that can get you into trouble. Flipping the right way enables you to legitimately profit from the system without having to tiptoe through legal minefields. It ensures that you establish the solid reputation you need to flip profitably for however long you want.
Determining Whether You Have What It Takes to Flip
Although anyone can profit from flipping houses, it’s not quite as easy as it looks on TV. Buying a house that’s brimming with potential for 20 percent to 50 percent less than you know you can sell it for is a huge challenge in itself, but after you take possession of the property, the real fun begins. Your contractor disappears after collecting your deposit. The landscapers hack through a buried cable. You find out that the septic system needs to be replaced. And the neighborhood association rejects every single one of your planned improvements.
To successfully deal with the unexpected twists and turns you’re sure to encounter, you need to have the right stuff, including the following:
Time and energy:
Flipping houses requires considerable time and energy for house shopping, lining up financing, scheduling and overseeing repairs and renovations, and more. If you already feel overwhelmed and overworked, maybe this flipping thing isn’t for you.
Focus:
Distractions can quickly derail a flip, so you’d better be able to focus in the midst of chaos, especially if you have a full-time job, a spouse, children, and other interests. Without focus, you won’t have the attention to detail required for success.
Ability to follow instructions:
You don’t need to know everything about flipping houses to get started, but you do need to know how to follow instructions, including those I provide in this book.
Ability to perform basic math:
Basic math skills are essential when you’re comparing financing options and crunching numbers to gauge how much profit you can wring out of a house. If you’re not good with math, you at least need to know how to use a calculator.
Organizational skills:
When you’re renovating a property, you need to be able to coordinate contractors and material so the work gets done as efficiently as possible. Remember, time is money.
People skills:
Being able to work with people and resolve any differences is key in many aspects of flipping, including convincing people to loan you money, negotiating lower prices for property, and managing contractors and work crews.
Sticktoitism:
Flipping houses involves failure and disappointment. Those who succeed don’t give up.
See Chapter 2 for additional guidance in deciding whether you have what it takes to flip houses.
Devising a Reliable Flipping Strategy
No two flippers have the same strategy. Some choose to live in the house they flip, while others find that too stressful. Some flip the house they live in every two or three years to take advantage of a lucrative federal tax exclusion (see Chapter 23), while others flip a house once every month or two for quick profits. Many investors focus on a niche market, such as foreclosure properties, HUD properties, or For Sale By Owner (FSBO) homes.
The strategy you ultimately settle on is yours to invent. What’s important is that you have a strategy and the system and resources ready to execute it. Before your first flip, you should have these essentials in place:
Cash or financing not only to purchase the house but also to cover holding costs and the cost of repairs and renovations
A plan for repairing and renovating the property (such as buying low, applying makeup, and selling high, or living in your flip while you renovate it)
A realistic estimate of the costs of repairs and renovations and the monthly expenses for holding the property
A schedule for completing the project
Reliable contractors who can begin working on the property immediately
A date on which you plan to put the house back on the market
Plan your flip at least as carefully as you would plan a two-week vacation. Chapters 3 to 5 help you lay the foundation for a successful flip.
Building an All-Star Team
When you’re gambling with more than $100,000 of your own or someone else’s money, learning by trial and error can be catastrophic. A safer way to develop the skills and foresight needed to reduce costly mistakes is to learn from others. Develop your own house flipping team and rely on the following professionals to guide and educate you:
Real estate agent
Financier/lender
Accountant
Title company
Appraiser
Home inspector
Real estate lawyer
Contractors
In Chapter 4, I describe the role that each of these valuable individuals plays on your team, and I provide some criteria for selecting the best of the bunch.
Hiring a pro may increase your costs but can save you a considerable amount of money in terms of time, doing the job properly, and avoiding costly mistakes. Just be sure to calculate the cost into your investment when determining how much to pay for the property.
Finding and Buying a Flippable House
The most critical stage of flipping a house is finding and buying the right house to flip. Buy a lousy house in a lousy neighborhood for more than it’s worth, and you’ve already lost the game. Finding a house that’s dripping with potential for 20 percent to 50 percent less than you can sell it for is quite a challenge, but as a flipper, that’s the fun part. Flipping is an adventure, a treasure hunt, and a poker game all rolled into one. Finding and buying a property is a four-step process:
Scope out a fertile neighborhood — often an area with homes that are at least 20 years old.
See Chapter 6 for details.
Zoom in on a dontwanner — a distressed property that the owner obviously doesn’t want or can’t afford to keep.
A distressed house usually has a distressed owner. See Chapters 7 to 9 for various ways of finding distressed properties.
Research the property carefully and calculate the most you can pay for it and still earn a decent profit.
You should be fairly certain that you’ll earn at least 20 percent for your trouble. See Part 3 for more about researching and evaluating properties and calculating a maximum purchase price.
Haggle with the seller to purchase the house at a price that virtually ensures that you’ll profit from the flip, as I explain in Chapter13.
In some cases, you won’t be haggling with sellers but bidding at an auction; see Chapters 8 and 9 for details on finding and buying properties in foreclosure and other special markets.
Rehabbing Your Fixer-Upper
Buying a house to flip is like buying a beat-up antique at a garage sale. You got the house for a bargain because it needs work that the seller hasn’t the time, money, or desire to do. By cleaning up the joint, fixing whatever’s broken, and doing a few renovations, you can bring the property up to market standards and sell it for its full market value. In the following sections, I walk you through the types of repairs and renovations you can make.
Planning repairs and renovations
Repairs and renovations require careful planning and execution to keep them on schedule and within budget. Before you begin, prioritize your repairs and renovations so you know what’s most important; I give you all the tools and tips you need in Chapter 14. Invest your time and money in the repairs and renovations that promise the most bang for your buck, and then if you need to trim costs, you can skimp on the less-important stuff.
Schedule the work so that it proceeds logically. If you install new tile and carpeting before painting the walls and ceiling, you risk ruining the new tile and carpeting. A good rule of thumb is to work on the infrastructure first — the foundation, electricity, plumbing, heating, and air conditioning. Then, work from the top down, finishing with the floors. Likewise, depending on the location, you may need to schedule curb-appeal renovations in the spring, summer, or fall.
Applying makeup
The ideal house for a first-time flipper is one that requires only cosmetic work — what I call makeup. Cosmetic work, covered in Chapter 15, includes the following low-cost repairs and renovations:
A fresh coat of paint throughout the house
New siding, fresh paint, gutter replacements, and other external tweaks
New wall-to-wall carpeting in any rooms that need it
New light fixtures
New outlet and light-switch covers
A thorough cleaning inside and out
Window washing
Storm window and door repair or replacement
Lawn mowing, weeding, and trimming trees and shrubs
Cosmetic repairs don’t add as much real value to a house as, say, a new kitchen may add, but they attract buyers. Often a house is undervalued simply because it’s unkempt.
Tidying up the exterior
Curb appeal is everything when you’re trying to sell a house. If prospective buyers pull up in front of a house that looks disheveled, they’re likely to pull away before you have time to open the front door. To sell your house for top dollar, it has to make a good first impression. It must have curb appeal — a fresh, well-manicured appearance that draws people into the home.
Chapter 16 shows you how to landscape and prepare the exterior of the house to make it draw passersby inside for a closer look.
Focusing on kitchens and bathrooms
Depending on their condition, kitchens and bathrooms sell houses or sink deals. A spacious kitchen with plenty of counter space and all the essential amenities — a clean range, refrigerator, microwave oven, and dishwasher — creates an impression that the kitchen is a great place to prepare meals and hang out with friends and family members. A sparkling-clean, well-lit bathroom with plenty of storage space creates a sense of comfort and cleanliness that permeates the house.
Although you should never over-improve a property, renovations that bring the kitchen and bath up to market standards always pay for themselves by adding real value to the property and making it more attractive to buyers. See Chapter 17 for the full scoop on renovating kitchens and bathrooms.
Making moderate changes
Somewhere between painting a room and building a room addition are moderate changes that you can make to a house to improve its value and draw more buyers. These improvements include installing replacement windows, replacing the screen doors or entry doors, and refinishing wood floors or installing tile or vinyl flooring. Chapter 18 lays out your options.
According to the National Association of Realtors’ 2013 Cost versus Value Report, you get the most bang for your buck on renovations by replacing the front door.
Tackling structural enhancements
Some houses are begging for a few major overhauls. Maybe the house has an unfinished attic that’s perfect for an additional bedroom or a beautifully landscaped backyard that has no easy access and no deck or patio. In some cases, you may discover a dinky house surrounded by mansions. By raising the roof and building a second story, you can double the living space and boost the house into a higher bracket. Chapter 19 takes on some of these major renovations, which may inspire your own creative visions.
Profiting from Your Venture
Although this book focuses on the buy-fix-sell approach to flipping houses, you can profit from a flip in numerous ways, including the following:
Sell the property.
Sell to an investor who’s better equipped and more motivated to flip the property (you’re essentially earning a finder’s fee, also known as the
bird-dog fee
).
Refinance to cash out the equity in the property, usually to help finance repairs and renovations or to use the money for other investment properties.
Sell the property on a lease option, essentially collecting rent with the hope that your tenants will eventually purchase the property.
Lease the property — become a landlord!
Sell the property on a contract, acting as a bank and collecting the interest.
See Chapter 20 for details on the various approaches to profit from a flip. In Chapters 21 and 22, I explain how to market and sell your home for top dollar. And in Chapter 23, I explain certain tax considerations that may help you keep more of your profit by paying less of it to your rich Uncle Sam.
Your options for profiting from a house flip basically fall into two categories depending on your goals: cash or cash flow. In other words, do you want to receive your money all at once by selling the property? Or do you want to keep the property and use it to generate a steady cash flow (by leasing the property or selling it on contract, for example)?
Chapter 2
Do You Have What It Takes to Flip?
IN THIS CHAPTER
Squeezing a house flip into your already hectic schedule
Taking inventory of your financial readiness
Checking your gut for the daring and determination to succeed
Putting together the tools you need
Anyone can do it.
If I had a nickel for every time I heard someone say that about flipping houses, I could retire on my own private island in the Pacific. When a real estate investment guru says, “Anyone can do it,” what she really means is, “Anyone like me can do it.”
I prefer presenting house flipping in a more realistic light by saying, “Anyone who has sufficient desire, energy, and sticktoitism can do it.” By following the advice in this book, you can acquire the necessary knowledge, gather investment capital, and find plenty of properties to flip, but if you don’t have sufficient gusto and grit, your flips will most assuredly flop.
This chapter leads you on a journey of self-examination to determine whether you have the right stuff to flip real estate — time, energy, a strong financial position (with your own or other people’s money — OPM), organizational expertise, people skills, tenacity, decisiveness, imagination, endurance, a healthy sense of humor, and a good support system.
Tabulating Your Time Budget
Most casual house flippers are weekend warriors. They hold down a day job of 40 or so hours a week and then work nights, weekends, holidays, and vacations on flipping houses. They typically invest anywhere from 20 to 40 hours a week, depending on how dilapidated the houses are, how ambitious they are to turn a profit, and how much of the work they want or need to do themselves.
Full-time flippers, who have enough cash on hand to finance their flips and cover their living expenses, typically invest 40 to 80 hours a week.
Although you may be able to delegate most of the work that goes into flipping a house, several tasks demand your uninterrupted time and focus:
House hunting
Networking to develop relationships that expand opportunities and flip houses in less time and for less money
Negotiating and closing the deal
Securing financing for purchases and renovations
Budgeting and other accounting tasks
Planning, executing, and supervising rehab projects
Marketing and selling the property
The amount of time required for these tasks varies greatly depending on how you choose to have them done. For example, if you hire an agent to help you find houses to flip, you may spend only a few hours checking out prospects, but if you choose to cruise the neighborhood for distressed properties, you may spend several days or even weeks finding a good prospect.
In the following sections, I explain the advantages and disadvantages of part-time flipping, tell you when you can safely start flipping full time, and list the tasks that you should (and shouldn’t) delegate to save time.
For the time-strapped: Part-time flipping
When you’re just starting out, consider keeping your day job and moonlighting as a house flipper until you establish yourself. Your day job provides steady income and security, which enables you to qualify for traditional financing at lower interest rates. Your paycheck helps you cover the mortgage payments, finance renovations, pay quarterly income-tax payments, and stay afloat when the housing market cools. Your full-time job also (hopefully) provides you with health and dental insurance, retirement planning, and other benefits you don’t get from flipping houses.
However, part-time flipping has a few drawbacks:
Flipping part time dilutes your focus. You may be in the middle of a complex renovation project late Sunday night and then have to show up for work bright and early Monday morning.
Working overtime on flipping projects can sap the time and energy you have for your family and your day job. Keep in mind that part-time flipping is like having a second job.
When you work a full-time job, you’re less available for fielding calls and dealing with problems that arise.
To compensate for some of the drawbacks, consider the following solutions for integrating part-time flipping into your life:
Work the second or third shift and focus on flipping during the day.
Schedule vacations around your rehab schedule.
Ask your spouse for help with paperwork and fielding phone calls while you’re at work — a perfect job for the work-at-home parent.
Become a weekend warrior, performing cleanup, yard work, and other chores on your days off. If you’re married with children, make the project a family affair.
Partner with a trustworthy friend or relative who has more free time or a more flexible schedule.
All the time in the world: Full-time flipping
Full-time flipping requires a big time commitment and a cash reserve to back it up. You need enough cash on hand not only to fuel your flip but also to cover several months of living expenses. Most flippers choose to become full-time flippers only after they successfully flip several properties, have a proven system in place, and have the financial resources to live without another source of income for at least one full year.
Consider flipping full time only if you have the following:
Five years’ experience successfully flipping houses on a part-time basis
At least one year’s income in reserves
Health, dental, disability, and life insurance and sufficient funds to cover the premiums
A blanket insurance policy that covers liability
A line of credit that enables you to do two projects at the same time
A solid business plan; check out
Business Plans For Dummies
by Paul Tiffany and Steven D. Peterson (Wiley)
A team of experienced advisors with varied backgrounds — financial, legal, construction, and so on (see
Chapter 4
)
Without these essentials, along with a strong work ethic, determination, sufficient cash reserves, a well-defined goal, and a solid plan to achieve that goal, failure is almost guaranteed.
Delegating time-consuming tasks
You can get more done in less time by delegating tasks. But be careful when choosing tasks to delegate. You can safely farm out any of the following jobs:
Job
Delegate to
Mowing lawn or shoveling snow
Day laborer or trusted kid
Heating, plumbing, gas, and electrical repairs
Licensed and insured contractors
Listing or selling home
Qualified and trusted real estate agent
Setting appointments to look at houses for sale
Real estate agent, family member, or friend
Cosmetic repairs, such as painting and carpeting
Qualified painters and carpet installers
Minor repairs and small projects, such as repairing a leaky faucet
Local handyman or woman
Marketing the rehabbed home, including distribution of signs and flyers
Real estate agent, family member, or friend
Showing the rehabbed home to prospective buyers
Real estate agent, family member, or friend
Think of tasks in terms of time and money. If you earn $25 an hour, hire someone to do the $10-an-hour jobs, and do the $50-an-hour jobs yourself.
Some tasks are far too important to delegate, unless you trust the person nearly as much as yourself. Avoid outsourcing any of the following jobs:
Securing financing for purchases and renovations.
Anything that requires the handling of money, including making payments. You can hire an accountant to manage the record-keeping.
Meeting city inspectors.
Accompanying home inspectors.
Managing your files and data systems.
Visiting properties prior to purchase. (Never buy a property you haven’t inspected yourself, or as I like to say, “Your eyes or no buys.”)
Negotiating and closing the deal. (Your agent can advise you and present your offers for you, but call the shots yourself.)
Planning and supervising rehab projects. (You can hire out the work, but visit the worksite regularly to ensure quality and control costs.)
Shaking Your Piggy Bank
You don’t need a lot of your own money to finance your first flip. You can beg, borrow, or partner up with an investor (see Chapter 5 for details on these options). Before setting out to flip your first property, however, tally the costs and your financial health, have a solid plan for obtaining financing, and know your debt tolerance, as I explain in the following sections.
Figuring out how much money you need
When you flip a house, plan on netting at least a 20 percent profit.
How much money you need to finance a flip depends on the grand total of all the costs for purchasing the property, fixing it up, holding it (taxes, utilities, and so forth), and selling it. You never know the actual costs until you resell the property, but you can do some ballpark estimates to determine how much money you need. See Chapter 11 for details on how to estimate the costs of repairs and renovations. In Chapter 12, I lead you through the process of estimating your total costs and the maximum amount you can afford to pay for a property in order to earn a 20 percent profit.
THE NOMADIC FLIPPER
I currently live in house number 23, where my family has lived since 1990. I moved 19 times before getting married. Before moving into a house, I’d fix up the bathroom, kitchen, and one bedroom. Then I’d live there for a few months to a year, fixing up the rest of the house. When the house was in pretty good shape, I’d either convert it into a rental or sell it for quick cash. I drew up a mini business plan for each property. Each plan was contingent on the current economic climate, my cash-flow needs, and the estimated long-term appreciation of the property.
Not all my deals were blockbusters, but from 1976 to 1990, I amassed property and cash worth millions of dollars. You can do the same, but don’t expect it to happen overnight. Draw up a successful long-term plan, start slow, and stick to it.
Finding cash to fuel your flip
Coming up with a cool hundred grand, two hundred grand, or three hundred grand to flip a house may seem a little out of reach at first, but several financing options are available, including the following:
Flip the house you live in.
Borrow against the equity in your current home.
Borrow from relatives or friends.
Partner with someone who has money to invest but lacks the time, expertise, or motivation to flip properties.
Borrow
hard money
— a loan from a private investor that typically costs money upfront, requires lump-sum payments on specific dates, and carries a higher-than-standard interest rate.
Chapter 5 explores these and other financing options in greater depth.
Taking stock of your financial health
To borrow money at a reasonable interest rate, you have a better chance if you can prove that you have money (or at least some valuable stuff), are currently making money, have a great plan, and generally pay your bills on time. Having a strong financial position is a big plus because it gives you access to cheaper loans, but it isn’t essential.
To take stock of your financial position, formulate a financial statement that includes the following figures:
Everything you own — cash, investments, house, car, boats, coins, jewelry, retirement accounts, and so on
Everything you owe — mortgage, second mortgage, auto loan, student loans, credit-card balances, back taxes, and so on
Your net worth (the value of what you own minus what you owe)
Gross monthly income
Total monthly bills
Treat your financial statement like a report card and update it every six months to grade your progress. An A+ financial statement gives you the power to borrow money at lower interest rates. See Chapter 5 for more information about figuring out your financial health and using that information to secure funds for flipping. This is true for credit reports, too. The higher your score, the more access you have to other funds.
CYA: Cover Your Assets. Don’t overreach and put your current financial health at risk. To protect your assets, don’t finance a house flip with your retirement money … at least until you’ve flipped several properties successfully and are confident that you know what you’re doing. If you’re married, put real estate investments in your name or your spouse’s name, not both, so only one of you is legally liable in the event of a lawsuit involving the property. Establish a home-equity line of credit for financial emergencies and use it only for emergencies.
Honestly evaluating your debt tolerance
Flipping properties requires a moderate tolerance for debt, especially early in your career. You have to owe money for extended periods of time before you reap a profit from that debt. Some people just can’t handle debt. What about you? You may be debt intolerant if you
Pay cash for a vehicle even when you’re offered 0 percent financing.
Pick up the tab every time you eat out so you won’t owe somebody lunch.
Prepay your utility bills several months in advance.
Own only one credit card and use it only for emergencies.
Debt can be good or bad. Debt used to finance investments that have a higher rate of return than the interest you pay on the debt is good debt. Bad debt is any debt racked up on spending sprees for stuff that’s worth less now than when you bought it. When flipping houses, loans and their costs can be fairly steep, but if you account for those costs in your budget and still turn a profit of 20 percent or more, the loan and related costs are worth it. (See Chapter 5 for the lowdown on good versus bad debt.)
Taking Your Personality Pulse
Not everyone has what it takes to flip houses. Some people are too nice, too nervous, too timid, or too lazy to pull off a successful flip. Others may get so emotionally attached to a house that they pay too much for it. And some people can’t handle the math and extra paperwork. Those who excel have the following qualities:
Energetic:
Flipping houses is stimulating, but the work involved can sap your energy faster than an overdue tax notice. Couch potatoes don’t survive.
Function well under pressure:
Few crises are more stressful than real estate deals gone bad. Imagine that your financing falls through, or you discover that the house you just bought is infested with termites, or you put the house up for sale and it lingers on the market for more than a year. When your life savings are on the line and you find yourself in a situation that’s completely outside your control, how well do you think you’ll function?
Organized:
Flipping requires strong organizational skills, attention to detail, and the ability to schedule work for maximum efficiency. If you have these skills, you have an edge over less-organized flippers, but if these skills are lacking or completely absent, don’t give up. Get organized, perhaps with the help of a computer; hire a top-notch assistant; or team up with someone who has the skills you lack.
Good with people:
The most successful property flippers are approachable motivators with good people skills … or they partner up with someone who fits the bill. Being good with people means you can
Knock on a stranger’s door without fear of being shot.
Calmly motivate others involved in the deal to move quickly.
Empathize with the needs of others and meet those needs in a way that’s encouraging and motivational.
