It wasn’t long ago that reality TV was full of real estate news programs that showed people buying and selling fixed up properties for profit. Everyone from professional developers to the newlyweds down the street were happy to be filmed as they made progress, made mistakes, and made money – or not – in their attempts at flipping real estate.
The perfect flip happens when you can find a home (or even a building) on the market for a fraction of its true value. Maybe it’s suffered a fire, it’s been abandoned, or even it’s so old fashioned that it’s virtually unsellable. The concept is buy it, bring it back to perfect and sellable condition, and make a profit at the sale.
If you can handle the demolition and rehab yourself, you’re ahead of the game. Once you start hiring contractors your expenses skyrocket and your profit dwindles. This scenario is only beneficial to professional developers who can work on multiple flips at once.
For instance, a good flip would be to purchase a house for about $50,000. Plan on $110,000 to fix it up. (You need to either have this money, or get a mortgage. Just remember that no matter what happens, it’s your responsibility to pay the mortgage!) Hopefully before your first mortgage payment is due all the work is done, and the house will sell. Let’s say it sells for $190,000. Your “profit” would be $50,000.
Before getting exciting, however, you might need to pay a broker’s fee to a realtor. You might also have contractor fees outstanding, a few mortgage payments you needed to make because the rehab took too long, and even some hefty closing costs. If you can walk away with $20,000 consider yourself very lucky.
If you’re still interested in making that fortune in Flipping Real Estate, there are a few things you should consider prior to making a final decision. How long can you afford to hold the house if it doesn’t sell? No sense going bankrupt! If you can’t do the work yourself, can you afford to hire licensed professionals? What are your plans if the rehab has problems – perhaps you learn the house is covered in mold once you take the walls, and the site is shut down until your spend $20,000 to have the mold removed?
These things happen more often than not, especially when you are dealing with “cheap” homes. Chances are the original owner walked away from a problem he knew he couldn’t afford. Google’s Real Estate News has more information.
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