For example people try to flip houses in markets like Detroit or Birmingham where they can buy houses really cheaply. Even now you can get a good house for less than $50,000…or perhaps even less. The problem is that it will STILL be worthless after you put in thousands of dollars remodeling. The MARKET value of houses is so low it’s impossible, and it’s not improving either.But, go back to the short commute rule. City people don’t like commuting to their jobs and people with income can get Commercial Loans With No Proof Of Down Payment to buy houses!
Yes, those LOCATIONS are too wrecked to be attractive to any investor or home shopper. This is true in many of the older manufacturing cities that are losing population.
So the old location, location, location rule still applies. It never really changes. The flipper thing that got so fashionable was SO wrong. It was masked by the brief market bubble before housing crashed so hard. Anyone with a pulse could get a mortgage for a while, but then reality hit and hit hard! Housing dream world OVER!
But there are still houses out there that are in good neighborhoods that can be remodeled and sold for a profit. They need to be in great locations with good schools, short commutes, good resale, and people looking for homes in the area.
So suppose you find one, what do you do? It’s like we have to go back to real estate basics. Find a house that you can buy cheaply enough to make money after you remodel. That means the price has to be right. One way to get the price right is to use the inspection process to push the seller into reducing the price. This has to be done with some delicacy but it helps if the house has been for sale for a while. If possible you want to pay less than market for the area. Can you figure out what market should be in the area? If you can’t you can’t flip houses successfully.
As a guideline, average the SELLING prices of houses in the immediate area. That is reasonable market value IF the houses are similar, the sales happened in the last 60 days, and you have the tax records from the local municipality to prove value. Asking prices are worthless in this context.
So then when you get the house for the right discounted price, what do you do?
Then you get to work and start remodeling. This is far more complex and difficult than most people think. You want this to go fast, especially if you are paying on a loan. Those loan costs can eat your profit in a heartbeat.
So how do you make it go fast? Your inspection will help, but they ALWAYS miss something. The big profit eaters for remodelers or flippers are things like wiring, plumbing, foundations, roofs, and additions.
A newer house out in the burbs would be cheaper to remodel, but no one wants it because of the commute.
But then they look at houses closer in to town and they don’t have open floor plans and they need a LOT of work far beyond decor. There’s just no pleasing these idiots.
But what if YOU can figure it out and do it over and over?
You might make money.
A word about financing your flip properties. Unless you have lots of cash, you will need some financing. And if you don’t have stellar credit and huge down payments, you will probably have to go the hard money route. Following are just a few scenarios you may can get a hard money loan where you will be turned down flat for conventional financing:
commercial loans with no tax returns,
commercial loans with a foreclosure or a bankruptcy.
In our second home market a builder is selling older people condos and taking their old houses off their hands and remodeling them for flipping! He’s got the work crew and the expertise to do it. Many of these houses would fall in the jumbo loan area, but buyers often pay cash but if not there is always the option of a jumbo residential investment loans. Just imagine the options and go for it.