Flipping Houses: Nine Steps to Foreclosures Profits – Part 1

Prior to housing market crash in 2008 and the subsequent foreclosure crisis, flipping houses proved to be a very effective strategy for real estate investors. House flipping describes the process of buying cheap houses at a deep discount, making cosmetic repairs– or in some cases major repairs for the experienced rehabber– and selling it within a few months for a higher price than you originally paid for property.

Again, the key to making this strategy work for most “flippers” is to find low-priced homes in solid neighborhoods. People who are successful with this real estate investment strategy can earn a substantial return on their investment.

Instead of flipping these homes, some “buy-and-hold” investors fix up the properties and instead of  flipping them,  rent out the properties to build a substantial monthly cash flow.

In this two-part series, the articles focus on  the strategy whereby investors buy foreclosed homes or other cheap houses, make repairs and/or improvements and sell the homes within a few months. Here are the nine basic steps for flipping houses.

Number 1 –Make an Offer

After you have performed the necessary due diligence to identify a home and ensure that it meets your investment criteria, including a conservative market value based on comparable homes that have sold, you must prepare a reasonable offer. Part of doing your homework is to conduct a detailed inspection of the home, to determine what repairs you will need to make in order to bring the property up to standards as similar properties that are selling in the neighborhood.
Deduct the cost of repairs, closing costs (both buying and reselling), holding costs, and your profit margin. You should know upfront what percentage of profit margin you are looking for such as 25 or 30% or an amount like $30,000 profit.

Number 2 – Sign the Contract to Purchase

After you present your offer to the owner and it is accepted, follow-up immediately to sign the contract to purchase the home and give the seller an earnest money deposit. Remember, even that you sign the contract, as long as you put the proper language in the agreement you won’t necessarily be obligated to buy the home. Adding “contingencies” will protect you if you have not completed your due diligence. You are basically making a move to gain control of the property so that it is officially taken off the market, thus eliminating competing buyers.

For example, you can but in a contingency clause that will gives you time to allow the home to be inspected to verify the repairs it will require or have it appraised to make sure that it has the value you need to accomplish your objectives.

Number 3 – Begin the Title Work

After you sign off on the contract and you have satisfying your contingencies, you can contact your title company escrow company or real estate attorney to start working on the title for the property. The reason for this is as follows:
You want to close the transaction as soon as possible after you complete the work and find a ready, willing and able buyer—and close out the transaction at the time you are schedule to settle .

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