Real Estate Investing 101: How to Flip Houses
By David Olsen
The real estate market dropped substantially in the summer of 2007. Lenders were suddenly in a pickle holding onto mortgages that were not being paid and houses left and right were taking the leap into foreclosure.
The number of houses in the national inventory grew by thousands. As a result there were new higher restrictions being placed by the lending industry that widened the already expansive gap between the home buyers and the home owners.
If real estate investing has ever been on your mind, then the fall of 2007 is the ideal time to jump on that bandwagon. The reason is because of the surplus of homes on the market and the low demand driving the prices into the ground. Hundreds of thousands of owners are scrambling to get their homes sold before the inevitable foreclosure ensnares them, too.
In this rich market there are some things you should do when starting your real estate investing.
1. Never overpay for your investment home… If you follow the 70% rule that other investors abide by then for a market value of $100,000 you need to buy it for $70,000. When you are flipping you need to keep in mind the closing costs when you purchase and when you sell and there are also holding costs when you place the house on the market. And, most importantly, do not forget that you need to make a profit.
2. Only buy your houses from sellers who are motivated There is a very simple way to determine who is a motivated seller. Use the four D’’s; Death, Disease, Divorce and Disaster, these are the factors that will motivate someone to sell their property. You can know that you”re doing a good thing as a real estate investor by helping good people out of their bad situations. You need to know what situation you are helping them with for the negotiating.
3. Do not use your own money… If you invest with your own money you are actually limiting your investment potential and your resulting cash flow. By using someone else’’s money for investing you will be able to level your value. There are a number of private investors out there who are willing to help you out with a short term loan at about 12 to 20% interest; even though that seems a little steep for interest rates, you can still clear an average of $20,000 per flip.
4. Do not do your own rehabbing work It just makes more sense financially to hire out for the work that needs to be done so that you can devote your valuable time to investing in other properties. How can you hope to flip houses if you”re too busy doing the grunt work? Just make sure that you have a simple plan and a system in place for how you want your rehab work to be accomplished.
5. Do not quote a price to the seller… If you are in the middle of negotiations, the first person to price quote is actually in the weaker position. Do not talk prices at all if you can help it. Do a walk-through of the home with the seller, check out any potential problems with the property and save that information for later use. When you get a good feel of the property you then ask the seller “do you have a price in mind for this property?” 90% of the time, the answer to this question will be some form of “I don”t know.” This is when they are trying to turn the tables for you to quote a price. Instead ask “I know you don”t know, but if you did know, what would you say?” This question seems to result in a price quote. Now you pull out your information about the problems with the property and say something along the lines of “That would a fair price, if (insert the information here).” And let them know that that problem would need to be fixed and mention the holding and closing costs you will have to pay. This is where you hit them with your 70% rule price. And then give them a great reason why this would solve their problems.
There are quite a few investors who have paid dearly for breaking one or more of these rules. The key to your success in the real estate investing business is to have both a system in place and a mentor to guide you. Learn from the success stories, as well as the failures, so you can determine what factors played a part in each. Avoid gurus and seminars; they are only a waste of your time and money. If you learn all the ins and outs of the business real estate investing can prove to be very lucrative.
About The Author
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