House Flipping: Strategies to Succeed in Flipping Houses in a Slumped Market
Flipping houses has become tremendously popular in recent years;
however, many would-be flippers are hesitant about trying to flip their
first home in a down market. While the market may not be as active as it
once was, professional real estate flippers will confirm that there is
still a market provided that you know how to properly situate your newly
flipped house.
The first step in making sure your flip sells in a slumped market is to
take advantage of the benefits offered by purchasing foreclosed homes
for your flips. This can be particularly advantageous when working with
a market that has taken a downturn because there is often a large
surplus of homes that homeowners could no longer afford.
Keep in mind that when buying a property in foreclosure it is important
to make sure you have your financing lined up ahead of time. You will
need to be able to act quickly in order to take over the property before
someone else beats you to it. Banks typically do not like holding
properties in foreclosure and want to recoup their losses as quickly as
possible.
Experienced real estate flippers generally attempt to bring in a return
of at least 20% of their total investment. Keeping this in mind ahead of
time will dictate how much you can afford to invest in the property when
you first buy it. In fact, many real estate flippers commonly say they
make their money when they buy the property. A simple formula for
determining how much to spend involves beginning with the price at which
you think you can sell the property after it is fixed up. Next, divide
it by 1.5 and then subtract the amount you think you will spend in
repairs, renovations, commissions for selling the house as well as any
potential holding costs. So, for example, if you planned to sell the
house for $150,000 you would divide this by 1.3 and come up with
$115,000. After subtracting expense amounts you should have a fairly
clear idea of what you can afford to pay for a property and still need a
20% profit.
Another option to make sure that you are able to still make money
flipping houses in a slumped market is to buy and hold. Many experience
real estate investors commonly use this strategy. With this approach,
the property is purchased, renovated and then leased out in order to
create a steady cash flow. This allows you to take advantage of the
tenant paying down the mortgage instead of you; meanwhile the property
continues to rise in value and when you are ready to sell the property
you will generally be able to benefit from cashing out a large amount of
the equity that has built up in the property. In addition, you can also
benefit from tax-write offs related to the property.
While this strategy isn't right for everyone when the market takes a
down turn a temporary buy and hold strategy may assist you in riding it
out until the market takes a turn for the better. Ideally, this strategy
works best when you are able to lease out the property for an amount
sufficient enough to cover the monthly mortgage as well as other
expenses such as maintenance costs, insurance, taxes and utilities. This
will allow you to efficiently hold the property without having to suffer
a loss when it sells.
If you find that being a landlord just isn't right for you, there are
other options. One option that would allow you to still lease out the
property would be to hire a professional management company. This saves
you the trouble of having direct contact with the tenants but be aware
you'll need to pay for the service so you may want to make sure this is
covered in the amount you lease the property for as well.
You might also think about actually living in the property on your on
for awhile. This would give you the benefit of being on hand while
renovations are performed. For this to work; however, you will need to
make a large time commitment and be prepared to live in a home that is
in a state of construction.
Remember that house flipping in a down market is still really no
different than flipping a house in an 'up' market. A down market may
require a commitment of more time than flippers who traditionally like
to take advantage of quick profits, adjusting your strategy slightly
could pay off well in the end.
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