Real Estate Flipping - How To
Do It
With real estate flipping, the most you
have to invest is an earnest money deposit. That is a big advantage
over other forms of real estate investing. The downside? You
have to spend a lot of time looking for deals.
Flipping has a couple different meanings
in real estate investing, depending on who you ask. Some se any
fast purchase and resale, even if it involves making minor repairs
and improvements, as "flipping" a property. The more
specific definition that many use defines flipping as simply
buying and selling without ever actually taking possession of
the property.
Can you make a profit buying and selling
property without ever owning it? Yes. It is done commonly in
some areas. It is a good way to use your real estate knowledge
to make a profit when you have little money of your own to invest.
Flipping Real Estate - An Example
One night, at our local real estate investor's
meeting, an investor told me he recently found a fixer upper,
but couldn't arrange financing. He had an accepted offer, and
there definitely was a profit to be made in improving the place
and selling it. Fortunately, he had a financing contingency in
the contract, so he would get his $500 earnest money deposit
back. But he really didn't want to pass up such a good deal.
What could he do?
He found a way to make a profit without
actually buying the property. There are always other investors
at these meetings that are looking for a profitable project.
One of them was willing to pay to take the original investor's
place. The original investor sold or "assigned" the
contract to him for $6,000. Since all he ever had into the deal
was a $500 "good faith" (earnest money) deposit, he
made a $5,500 profit. This is "flipping".
Notice that he didn't need a down payment.
He didn't even have to buy the property to make money. Thee was
enough potential profit in fixing and selling the property that
other investors were happy to pay to take his place.
There are a couple important points here.
First, this guy knew how to find a good deal. Then, he put in
his offer the right to assign the contract to another investor
if he wanted to. This is usually done by writing "or assigns,"
"or my assigns" or something similar after your name
as the buyer. Find out what the most acceptable language is in
your area.
Some sellers may take issue with this.
Simply explain that this is so you can bring in a partner if
you want, or let your partner take your place. All the terms
of the contract remain the same in any case. In fact, it means
that if your financing isn't approved, as in the above example,
you will likely save the seller the trouble of finding another
buyer by doing it for him.
Notice that you can do deals like this
with no money down. In the example above, if the original investor
had put the $500 deposit on a credit card, it truly would have
involved none of his own money. Of course, that outrageous 3%
cash-advance fee and 18% annual interest for a month would have
reduced his profit by $22 or so. Obviously zero down is possible
and profitable if you start by flipping real estate.
More About Flipping
Usually buyers of contracts will not pay
you until the deal is closed. This is only fair, as there may
be issues that show up during inspections, or other things outside
of their control that prevent the deal from closing.
Although I use an example of a fixer-upper,
any property that can be bought cheaply can be flipped. Even
if bought at market value, the right buyer might pay you something
to take your place. The main thing you need for real estate flipping
is the courage to try it.
Copyright Steve Gillman. This article was an excerpt from 69 Ways To Make
Money In Real Estate. Want to know the other 68 ways? Visit http://www.99reports.com/make-money-in-real-estate.html
