"Flipping" has been the buzzword of the decade in real estate. And even in todays post-bubble market, its 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, Im 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 youre 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
"Lets 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 doesnt, 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 dont have to pay a brokers 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"
"Dont 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 dont do any work on the property. Ideally, you dont even take full ownership. (You "assign" the sales contract over to your buyer or set up a "simultaneous closing.") You wont 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.
