I know there are lots of us that have thought about flipping homes. For most of us it’s the initial cash to start the process, but for those of you that have the cash then perhaps all you need to know are the three golden rules below. If you are looking for an experienced Tampa area Realtor who previously owned a home inspection franchise for 7 years to help you, I would love to help you make wise real estate decisions. Give Rich Kemper a call at 813-777-5332.
THE THREE GOLDEN RULES OF REAL ESTATE INVESTING
• Don’t buy with the expectation that the home will shoot up in value. During the housing boom, too many flippers got burned by counting on fast price appreciation. When the market tanked, so did they.
“If you buy only hoping that prices are going up, it’s the same as going to (Las) Vegas,” Levinrad said.
Flippers must buy at enough of a discount that gives them instant equity in the home, Levinrad said. That allows them to turn around and sell without having to wait for prices to rise.
Without instant equity, it’s best to hold off – unless investors are willing to become a landlord, he said.
Levinrad and David Dweck, founder of the Boca Real Estate Investment Club in Coconut Creek, Fla., say flippers should buy a home for no more than 65 percent of the market value after repairs. If a house is worth $100,000 after it’s renovated, and it requires $10,000 in work, the maximum price an investor should pay is about $55,000.
Dweck’s advice: Don’t skimp on renovations and save the receipts to show appraisers.
“The biggest challenge right now is appraisals,” Dweck said. “The more ammunition you have to give appraisers, the better. But there is absolutely no guarantee.”
Maher Hanna, a student of Levinrad’s seminars who started investing full-time this year, said flippers – particularly beginners – may have to be satisfied with modest profits.
“There’s a saying: Bulls make money, bears make money, but pigs gets slaughtered,” Hanna said.
• Do your own due diligence. Investors should know the true value of a house without relying solely on outside sources.
Too many novice investors take a real estate agent’s word, Levinrad said. Even appraisals may offer only a ballpark figure, he said.
The best way to determine value: Travel to the neighborhood, attend open houses and see what similar-size homes are selling for.
Also find out how many other homes in the area are listed and for what prices. Flippers should price their renovated properties slightly below market value to attract interest. That will ensure they don’t have to keep the home any longer than necessary, Levinrad said.
• Know your exit strategy. If an investor is planning to buy, renovate and resell, stick to the plan.
Some investors change course and end up regretting it. They may realize they’ll make less money on the deal than originally expected, so they hold the home and rent it instead.
But then they discover they aren’t prepared to be landlords – from the hassles of dealing with problem tenants to the high cost of maintaining the homes.
“Something that was supposed to be a profitable and enjoyable experience turns into a nightmare,” Levinrad said. “If your profit is less than you anticipated, consider it a lesson learned and move on to another property.”
Copyright © 2013 Sun Sentinel (Fort Lauderdale, Fla.) Distributed by MCT Information Services.