Flipping Houses

[shasta]

I'm starting to look into the idea of purchasing houses and then based on the current condition upgrading the house or making design changes to increase its value and then selling them for a profit.

Does anyone have any experience or any advice on where I should get started?

[plumber2]

Think twice before you buy, and then if you still want to do it, think twice again.

[shasta]

Thanks plumber2,

Do you have experience flipping? If so, what do you look for when you are looking for a house with potential?

[LarryDierker]

There are a lot of books out there on the subject.

my dad used to do this to low end rural houses. he got a lot of sweet deals after the hurricanes. He would do all the repairs and upgrades himself though. then owner fiance instead of going through a realtor because they sell quicker.

He would find run down houses at county auctions. Sometimes if he saw a nearly dilapidated home, he would ask the neighbors who owned it or find the owner in the tax records, then make an offer.

He once bought a house in Silsbe for 5k, fixed it up, then sold it for 60k.

[Simbha]

In general, I've found - through personal experience and anecdotes of others - that it's not a fruitful endeavor unless you plan on doing all (or at least the vast majority) of the repairs yourself. If you have to contract for this work, it becomes MUCH harder to turn a profit.

[samagon]

I believe undocumented labor could make it profitable, but that's not legal, so I'd strongly recommend against it.

I think regardless, it really depends on the property, the current climate of the market, the amount of work you would have to do, and then I'd imagine you're probably not looking at a healthy profit.

Rentals on the other hand, I'm of the impression they can be a great supplemental income!

[brian0123]

Rentals on the other hand, I'm of the impression they can be a great supplemental income!

I was actually just about to ask this. Let's change the scenario to one where you buy an outdated house, renovate, then rent it out. I've noticed there seem to be a lot of places around town (especially in the burbs) where rental prices are a lot higher than what the mortgage would be. To me it seems like a no-brainer. How much beyond mort.+taxes+insurance would you say you'd need to get in rent in order to come out ahead when you factor in repair costs for the house?

[innerlooper]

Actually owning and managing rental property is a brainer. Flipping houses successfully just means watching your dollars to make sure you aren't just being someone's free general contractor for six months.

Rentals involve The Human Factor, dealing with professional deadbeats, liars, slobs, animal breeders, absconders, substance abusers, cheats, hostage-takers, free-spirits, and other assorted flotsam and jetsam of society. Yes stay at or above the Lower Middle Class if possible, that helps reduce the hassle factor, and you can do a lot of background checking, but in the end you will learn a lot about human nature that they don't teach in school or portray in the media. Dallas has an online eviction index available, but not here.

Texas is pretty landlord friendly. You can get a constable to show up and move them out relatively easily. That doesn't happen in "progressive" cities like SF and NY and Boston. You just have to hope that they haven't trashed the place too badly. If you can factor in your time, and the aggravation of dealing with the occasional a##hole, then knock yourself out. Doing the numbers like mortgage, insurance, and taxes, is the easy part.

Leigh Robinson's book Landlording is still in print and was updated in 2010 (the cover art though hasn't change in 33 years). He was in the rental trenches in Berkeley where a Nice Free Place To Stay is a Human Right, and he made it work there, so it is possible. He offers this one great tip: go see where they are living now. That will tell you what they are going to do to your place. And meet the gentle Pit Bulls and the couch-surfing brother they forgot to mention.

To be fair there are lots of fantastic renters out there who keep places tidy and pay on time. Its a puzzlement why they have not bought, but its a fact, they exist. Happy hunting.

[JJVilla]

He offers this one great tip: go see where they are living now. That will tell you what they are going to do to your place. And meet the gentle Pit Bulls and the couch-surfing brother they forgot to mention.

This a very good point that my realtor in LA also mentioned to me when she is looking at future renters.

[plumber2]

Thanks plumber2,

Do you have experience flipping? If so, what do you look for when you are looking for a house with potential?

No I do not have personal experience, only stories from people in my trade that have attempted it. You have to be prepared to do alot of the work yourself if want to realize any profit. And If you have day job, then that means a lot of overnight hours. Also the theives will come during the day and your take stuff if you don't have the place super secured. I'm not trying to scare you off, just be sure you are willing to put up with the dissapointments that come along with this type of adventure.

What to look for?, sagging roofs, and doors that do not shut. Cracks in the drywall, near doors and windows (or obvious repairs). From a plumbing stand point, look for fixtures that drain slow. If you see these types of things, then be prepard for extensive (= expensive) repairs. Galvanized piping is also a big show stopper these days. Galvanized pipe installed in homes during the 80's is now coming to it's usefull end of service. Look for repair clamps or corroded pipe fittings in the attic. (yes, you must look in the attic). Good Luck!

[TheNiche]

There are a lot of books out there on the subject.

my dad used to do this to low end rural houses. he got a lot of sweet deals after the hurricanes. He would do all the repairs and upgrades himself though. then owner fiance instead of going through a realtor because they sell quicker.

He would find run down houses at county auctions. Sometimes if he saw a nearly dilapidated home, he would ask the neighbors who owned it or find the owner in the tax records, then make an offer.

He once bought a house in Silsbe for 5k, fixed it up, then sold it for 60k.

That's precisely the formula for successful flipping.

1) Check your ego at the door. Renovate to the market, not to personal taste. Housing is a commodity; your good name isn't a brand and your pride will not substitute for good credit and owner's equity.

2) Be picky about the seller. If it's been listed on MLS for more than a couple weeks, don't even waste your time. Actively seek out distressed sellers. Watch tax and courthouse records for delinquent taxes, tax suits, outstanding legal judgments, and mortgage agreements. Learn to skip trace. Know the seller's history. If its a tax sale, understand the concept of the right of redemption. If its any sort of constable sale, know that the title can be impaired for up to four years and that you won't be able to do anything with the property other than owner financing or leasing until that time.

3) Don't have all your eggs in the flipping basket. Whether you have a partner or not, be sure that you personally have enough liquid assets that you can wind up the deal at any point in time. If your day job is related to the financial markets or the housing market or your other investments are related to finance or housing, then increase the multiple. For instance, if it were me, I'd shoot for having two to three times the liquid assets.

4) Know your worst case scenario and prepare for it so that you aren't afraid to embrace it if necessary to prevent far worse outcomes. Understand that your lender will not make non-recourse loans, even if you call yourself an LLC. Your mortgage and auto loan will be secured by the assets, but there are a lot of assets that are protected from seizure during a bankruptcy. Its usually best to buy your own home before you start buying houses for others; you may not have another chance for the next seven years.

4) If you aren't good with Excel, get good with Excel. Your cash flow model should be fairly sophisticated. Lenders will respect that.

5) Watch for the warning signs of foundation movement and understand that leveling the foundation can result in severe and unpredictable collateral damage throughout a structure. Brick walls can crack and even collapse. Plumbing can spring leaks. Sheet rock will probably tear. Anything installed by a prior owner to an un-level house is going to appear to have become un-level.

6) Even a severely leaking and sagging roof can be repaired, and it's tempting to think that you can budget for it. You probably could. But it reflects on the overall build quality of the house. It's red flag for all the things you can't see.

7) Expect to have a very difficult time with contractors on the first couple of deals. You won't be able to afford using name-brand companies that own a physical plant and whose work is bonded and guaranteed. Most of your contractors will be judgment-proof, meaning that they wouldn't even be worth suing if they break their contract. Short of criminal behavior, they can screw with you at will. Again, this is where skip tracing can come in handy. Get a copy of their drivers license, their references, check courthouse records, and check for outstanding warrants. Even then, expect that one of their helpers will tell a friend, who will tell a friend, about any unsecured supplies, exposed copper, or tools...which will then be stolen.

8) Keep good books and records. Your lender will respect you for it. Keep notes on all conversations with contractors, partners, and your lender. These will allow you to maintain objectivity and identify when there's a pattern of dishonesty from particular individuals. When something goes horribly wrong, your lawyer, the IRS auditor, and the judge will respect you for this. More than anything else, these documents can establish your good faith to stakeholders and prospective stakeholders.

9) Owner financing with a special warranty deed can get around title problems, but once again, use skip tracing to know your buyer. Your target market may be very unsophisticated. One viable strategy may be to sell to immigrants that would be unaware or unwilling to file for bankruptcy, even if they're homesteading the property. In that way, you can foreclose and get the property back when they default and can turn around and sell the property again.

10) Becoming a licensed real estate salesperson or broker may be tempting, but it also opens you up to a greater degree of scrutiny and a higher expectation of professional knowledge and ethics. Just something to consider.

**DISCLAIMER: I am not an attorney or accountant. You should consult licensed professionals before acting on the advice of an anonymous internet jackoff like myself.**

[OldHouseLover]

Actually owning and managing rental property is a brainer. Flipping houses successfully just means watching your dollars to make sure you aren't just being someone's free general contractor for six months.

Rentals involve The Human Factor, dealing with professional deadbeats, liars, slobs, animal breeders, absconders, substance abusers, cheats, hostage-takers, free-spirits, and other assorted flotsam and jetsam of society. Yes stay at or above the Lower Middle Class if possible, that helps reduce the hassle factor, and you can do a lot of background checking, but in the end you will learn a lot about human nature that they don't teach in school or portray in the media. Dallas has an online eviction index available, but not here.

Texas is pretty landlord friendly. You can get a constable to show up and move them out relatively easily. That doesn't happen in "progressive" cities like SF and NY and Boston. You just have to hope that they haven't trashed the place too badly. If you can factor in your time, and the aggravation of dealing with the occasional a##hole, then knock yourself out. Doing the numbers like mortgage, insurance, and taxes, is the easy part.

Leigh Robinson's book Landlording is still in print and was updated in 2010 (the cover art though hasn't change in 33 years). He was in the rental trenches in Berkeley where a Nice Free Place To Stay is a Human Right, and he made it work there, so it is possible. He offers this one great tip: go see where they are living now. That will tell you what they are going to do to your place. And meet the gentle Pit Bulls and the couch-surfing brother they forgot to mention.

To be fair there are lots of fantastic renters out there who keep places tidy and pay on time. Its a puzzlement why they have not bought, but its a fact, they exist. Happy hunting.

Very well written truthful description! After 30 yrs in the trenches [with2 real estate crashes], we're folding & walking away. Not easy & our blood pressure will probably drop to unhealthy levels for lack of stimulation & stress. Joints are sure to have difficulty adjusting to lack of aches & pains from DIY. Maybe we can pitch the heating pad & ice pack. Finding a good affordable contractor that does not require standing over to make sure things are done right [or owner does not have to redo] is quite a challenge. TheNiche's # 1 caused a roaring laugh from hubby as I'm always wanting to provide an attractive, clean, rental [according to my standards/likes], hoping to get top dollar rents. From our experience, it makes no difference whether the rental is low income or mid-high income. Rental is Rental! I know there are exceptions, but not easily found. I do background checks, employment verification, & ask where they living now, contact the landlord, drive by & still find hidden untruths. Owners just have to decide which untruth your willing to "deal with". BTW, I do month-to-month, not lease. Flipping is not as profitable now as 15 yrs ago, as there is too much competition to install the same amenities, adding to the costs. Our most profitable properties have been in the low income areas where buyers are happy to have a nice comfortable home & don't expect all the amenities [which up the price], & certainly don't want the restrictions/HOA. Good renters who keep property maintained & pay on time usually don't want the responsibility of maintenance [rather have fun on weekends instead of maintaining home], they are not confident of their present relationship, don't want property in their name [for a variety of reasons]. Presently, I'm finding eviction has changed in the last 10 yrs also:). Yep, it's sale time!

[jonathan wood]

The ultimate goal of any house flipping project is to make money. You should always have an idea or how much money you want to make on your house flipping project. Flipping houses was a big trend for a while there, until the housing industry crashed. However, the quantity of people doing it has begun to increase.