Real Estate Flipping - Introduction- Week 5
By.. "Venu Vankadhara, Real Estate Investor"
What is flipping houses?
“House flipping” or “Flipping houses” is a term that means you are buying a house and then turning around and selling it for a profit. Below are the key focus areas of flipping a house.
Knowing how to find, analyze, and buy houses is the single most important skill you can have when it comes to flipping houses!
Essentially the process of “Buying” can be broken down as well into 4 areas as well.
You will need to figure out and decide…
- Inventory: What kind of houses will you focus on buying?
- Farm Area: Where (what location) will you focus your efforts in looking for these houses?
- Deal Analysis:What will you offer for these Houses?
- Acquisitionsor Buying Methods: Which methods will you use to find and acquire these houses?
Here we come to the second fundamental part of flipping houses: financing. Financing is just a fancy term that means you have to come up with the capital (or “money”) to pay for the property.
Two big myths with financing are that you either have to do it through a bank, or you must only use your own cash to buy the property.
This couldn’t be farther from the truth! Bank financing is only one way to get money for a property and definitely not necessarily the first one I would recommend. And you are certainly not limited to using only your own money either.
One popular way to finance a property when flipping houses is to use “private money“. A private money lender is someone who is seeking an alternative way to invest their money, rather than a risky stock market or low-yield savings accounts and CDs. Since flipping houses can often provide individuals with an annualized return of 8-12% on their capital, which is a fair sight better than the 0.05% return that most banks provide.
Similar to that is “hard money“. The main differences between hard money and private money is that hard money is more “institutionalized” and you might need to qualify for the loan. The benefit of this method over using a bank is that the qualification process is much less stringent. Although hard money lenders will look at some qualifications, they mostly focus on the deal and the house you are buying, rather than your credit. They might charge you points and other fees that you don’t get with private lenders, their rates might be higher and you usually won’t get the entire amount for the purchase of the home, so you might have to come up with additional capital outside of that provided with your money lender.
The 3rd pillar in operating a house flipping business is rehabbing.
Rehabbing is the process by which you fix and upgrade a house to bring it up to “retail” value, so you can then sell it for a profit. Many people believe they need to be “handy” or able to do repairs themselves in order to flip houses because they don’t think they would know anything about the rehab process.
So you’ve worked hard to buy, finance and purchase, and rehab the property and now is the time for the moment of truth! Although there are many ways to sell a house which we can cover in more detail later, for now I will just tell you that once you have gone through all the work of coming up with a great product your best bet is probably to list the house on the open market with a Realtor.
"Venu Vankadhara, Real Estate Investor"
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