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Some people want to buy properties because they want to invest and hold them long-term. Others want to “flip” the property. The purpose of flipping properties is basically to create profit and cash flow in a reasonably short time.
The Property
The first part of flipping properties is to have the opportunity. The property doesn’t necessarily have to be for sale, but it has to be on sale. You might have to look at 100 properties until you find the right one.
Sometimes you need to team up with someone who has more experience because you may not have the right feeling for what is a good opportunity. If you have been in the business, following the market, or are an agent/broker or some investor, you may have a good idea what’s on sale. If you want to flip property, it is best to get one that is vacant.
Let’s say you find a property that has been reduced 40% of the market value. Hopefully, you did your due diligence as to what the market is; different areas will have different market values and pricing. If you are in an area where market values are cheap, 40% may not be enough to turn a profit. For example:
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If you have a $100,000 house going for $60,000, you may end up losing money if things do not go smoothly; but,
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If you have a $1 million house and you pick it up for $600,000, even with all the things that could go wrong in the work that has to be done, you can make money.
Financing
Once you do decide on a property, you have to have the funds to do the deal, so you are going to have to have partners or hard money lenders lined up. Even if you go with hard money lenders, you are probably going to need 30% or so in cash to do the deal. You may want to take on partners to cover the down payment, with the hard money people filling the gap.
The hard money people are going to want to know your credit score and if you can pay the loan back. If it’s a good property, they’re not that concerned about it because they know that if something goes wrong, they could foreclose. Foreclosure is not their goal, however. Their goal is for you to pay it back, because that’s their business.
The other thing they are going to want to know is your exit strategy. Even though they are getting their interest payments, they want to know how you are going to pay back the loan. Are you:
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Selling the property; or
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Getting another conventional mortgage?
Sometimes you already have someone lined up with a contract who’s going to buy it and take it off your hands right away. That will help the hard money lender or partners/investors want to team up with you.
Flipping properties is definitely not a walk in the park. Everything has an element of risk, so you know going in anything could go wrong, You have to expect the best but be ready for the worst.
In Part 2 of this series, we will discuss the aspects of renovation and making a profit. If you are interested in flipping a property or if you need help or partners/investors, please feel free to give us a call.
Mendy Lipsker
Mendy Realty Inc.
822 Montgomery St
Brooklyn, NY 11213
Phone: 646.662.5454
email: info@mendyrealty.com
website: mendyrealty.com
