Finding real estate deals to flip is like searching for gems in the rough. Inexperienced foreclosure investors sometimes falsely believe that any property may be profitably purchased. Finding foreclosed properties that will yield a profit when flipped is, unfortunately, a numbers game. If you put in the time and effort, you’ll find that only ten out of every hundred foreclosed homes are worth buying. If you were to invest in any of the other 90 homes, you would lose money. Then, out of those ten promising residences, you’ll only submit offers on three. Only one of the three homes you offer is likely to be purchased.
Consider the effort required to look into a hundred different properties to find one good deal. Weakness, discouragement, frustration, and disillusionment are common during this procedure. However, as Darwinism dictates, only the fittest survive. Those that are determined and take the time to learn how to flip real estate are the ones who will ultimately thrive and become wealthy. Take note that I indicated your only requirement is a determination to succeed. Take note that I didn’t mention wanting or needing cash. You may make a lot of real estate without using your own money or establishing a credit history. So many skeptics refuse to believe this and write off real estate investing as a fraud. However, this is crucial to building a solid portfolio in real estate. I have never risked a single cent of my capital throughout my many real estate transactions.
How can you find these “diamonds in the rough”? If you want to learn how to flip houses, consider these ten-pointers.
If the total amount of all mortgages on a home is more than 70% LTV (loan-to-value), you should not pursue a foreclosure lead. For a property valued at $100,000, the maximum amount that can be borrowed as a first mortgage is 70%. If that’s the case, you might want to avoid living there. It’s a waste of money at best and likely a loss if you put money into it. This is true whether buying from a private seller or participating in an auction.
Foreclosure homes that are currently occupied take second place to vacant or abandoned properties. A homeowner who has already moved out is much easier to deal with than one who is in denial about their condition and refuses to sell or move.
Create a situation where you and the homeowner can benefit from selling the foreclosed property. Try to identify an issue the homeowner is experiencing and devise a way to fix it. You wouldn’t want to attack a sheep, so don’t attack a homeowner. To invest in foreclosure honestly and ethically, you must put the homeowner’s needs before yours.
Choose among the homes that appear to need minor work. When purchasing a foreclosed home, it is essential to factor in the expense of repairs, even if you cannot learn everything about the property without a professional home inspection.
You need to get good at math. If you have a $100,000 home with a $70,000 mortgage and need $10,000 in repairs, how much can you make by selling it? If you guessed $20,000, it turns out that you’re mistaken. You’ll have to cover the property’s closing expenses and possibly its mortgage and utilities until you can resell it. There could be realtor costs involved. The homeowner will also likely expect compensation for their trouble. After all, if they have exhausted all other options, the offer of a real estate investor to buy their home is their only trustworthy source of equity.
Before buying a foreclosed home, you should always check its title. You need to know precisely what liens and encumbrances are currently attached to the property. What happens if the homeowner gets sued for $50,000 and the sum becomes a lien on his home? True or false? If you buy the $100,000 house above, subject to the existing loans, and then sell it for $100,000, all your money goes toward paying down the lien.
You should never, ever, ever buy a house without first taking a drive by it. Check the neighborhood from a car to understand the home’s worth and desirability. If a property appears to be a good deal on paper, many inexperienced real estate investors automatically believe it is. What if everything checks out on paper, but the property is swamped?
For every investment property you’re considering, always plan your exit. When learning how to flip a house, this is one of the most crucial steps. Is it possible to profit by fixing up and selling this house in two months? Will six to twelve months be required before this house may be flipped? Is the rent you anticipate receiving adequate to cover the home’s monthly costs? Who makes up the bulk of the rental market? Do significant repairs need to be made, or may these be cosmetic? Is this the sole historic property in a neighborhood of brand-new developments? Having a plan for getting out of a situation is crucial. How do you plan to make money off of this home? If things go south and you have to sell the property quickly to avoid a loss, what contingency plan do you have in place?
The following is a treasure trove: Is it possible to negotiate a short sale with the mortgage firms holding the first (and possibly second) mortgage if the overall LTV is more significant than 70%? Let’s return to our $100,000 home as an illustration. Let’s say the home’s $80,000 in mortgage. Given the 70% LTV requirement, you can decide against purchasing the house. What if, however, the mortgage holder has a “short sale department” and is willing to negotiate a payoff that is less than the total amount owed to release their lien on the property and allow the homeowner to sell the house to you for a lower price? What if you offer $70,000, and they take it? So, there you have it! You have a 70% LTV on your home. When the house wasn’t an offer, you just made one! When you’ve mastered this technique, you’ll have studied the ins and outs of real estate flipping.
Keep your emotions out of business. If you’re having trouble doing so, you’ll need to train yourself to overcome your emotional resistance. We are in the business of real estate flipping to benefit property owners, but our primary motivation is financial gain. If you find a stunning property, a home that would yield you $100,000 in profit, or a homeowner who is receptive to your help but the deal still can’t be finalized, MOVE ON! Do not become emotionally invested in the transaction; doing so can lead to disappointment. However, this doesn’t mean you shouldn’t keep trying to negotiate a better price. However, a settlement can sometimes only be reached after extensive back-and-forth via phone calls, emails, and written
correspondence. Saying “no” today does not guarantee a similar response tomorrow. It may take multiple attempts at communicating with a homeowner via mail, telephone, or personal visit before they are willing to cooperate with you. After all, they’re more concerned with keeping their house than you are with purchasing it. You cannot close the deal if you and the other party are not on the same page. And if a house can be saved, the owner will. They’ll consider you when they’ve exhausted all other options and are left with you.
Start investing in foreclosures the right way by following these seven steps.
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