Flipping in a down market? Are you Crazy? Maybe Not...

By
Real Estate Agent with Prudential Ambassador Real Estate

I used the word "Flip" very loosely. I prefer "property beautification," as it implies that I am making positive changes to the property. But, I digress.

So, you wanna flip in a down market huh? Well, let me tell you that investing in today's market is not as crazy as it sounds. Let me give you my ideas, as I rehab properties for profit, and speak from experience.

1. Focus on Foreclosure:

The idea of focusing on foreclosures seems a bit tired, but maybe you are just doing it all wrong. So here is a tip. Banks love owning mortgages, but hate owning properties. REO properties are bank owned properties, and can be a very lucrative buy. No, negotiating with the bank isn't the easiet way, but you can trim some of the $$FAT$$ by dealing directly with the asset managers, rather than bothering with Sheriff Sales or Auctions.

2. When choosing a property, dicsount the property using a higher discount points.

What the heck is this guy talking about you say? Listen up. Take and easy number, say $100,000. That is the price you wish to sell your flip when you are done. Now, take into consideration all the Dollars you will be spending in repairs, realtor fees, utilities, staging, etc... Now add to this number the profit you wish to gain from the sale of your flip. Are you catching on? Good. Now subtract that entire number from you hopefull sale price and that is the number you should buy the flip for.

There is any eaier way to do this. My team uses a set number to divide the hopeful sale price of the home by, and gets the number at which to purchase a home. My team uses 1.2 to 1.3 as a guide. For instance. Take $100,000 and divide it by 1.2. You get $83,333. So why use 1.2? Becasue our goal is to make 20% return on investment, and by dividing the hopeful sale price by 1.2 you get an idea of what you should purchase the home for in order to set yourself up to make that 20% return. The rest is up to you to make smart decisions in the flip process.

Now in  down market we look at discounting to 1.3 in order to cusion a longer period the home may sit on the market, or other variables that may prove the sale of the flip to be more difficult. One of the major issues for flipping in some down markets are the lower sale prices due to homes selling below fair market value and dropping home values.

3. Be a flipper who buys-and-holds...

Flippers are not known for buying and holding properties, as they wish to make a quick profit. But in a down market, re-create your system to allow for you to buy and hold your flip project. If it is going to take you longer to sell your flip, why not wait out the market slump on OPM (Other People's Money)? Flip and lease your project, and when the market turns sell the property.

Some people are not landlord material, but if your financial situation allows for you to hold a property during a market slump, and on someone else's dime, lease the property and wait. Also, living in you flip will help, as you don't have to pay two mortgages.

These three tips are a great way to maximize your potential for having a sucessful flip in a down market. Some may fail, but let that be someone else. Make smart decisions, have a plan and work it, and make sure you follow a budget. Good Luck!

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Topic:
ActiveRain Community
Location:
Nebraska
Groups:
Realtors®
Tags:
flipping house
investment proeprties

Comments 3 New Comment

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Rainmaker
282,413
David Matney
Omaha, NE Real Estate | Omaha, NE Homes For Sale
Alliance Real Estate

Matthew, it looks like your addicted!  ;-)

January 08, 2009 11:52 PM
Rainer
9,666
Patrick Boyle
Realty Concert - (888) 430-6090

Matthew, good post, we're always wondering what people are doing out there!

If you have a buyer lined up for a property, then even a bad market will work.

#3 seems more like a flop than a flip! perhaps if the home were sold to a lease-option buyer with a deposit, you could still call it a flip? ;-)

January 08, 2009 11:58 PM
Rainer
22,932
Matthew OnullShea
The OnullShea Group at Prudential - 402.310.5977 - Matt OnullShea
Prudential Ambassador Real Estate

#3 is most likely what you do when you flopped, good evaluation Patrick

January 18, 2009 03:15 AM
Anonymous
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Rainer
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Matthew OnullShea

The OnullShea Group at Prudential - 402.310.5977 - Matt OnullShea
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