The (Art of the) Flip

To flip or not to flip, that is the eternal question. There are some real estate critics, and depending on what the media reports, one might think that flipping was some sacrilegious act that preys upon innocent builder/developers and destroys entire master planned communities in its wake. Some people even think of the “flip” as a four-letter word. The reality of it is that flipping can be a good thing for both developers and investors and/or a bad thing depending on how it’s approached.

And depending upon how it’s executed, it can be profitable or a bust. Many factors play into this equation. Later articles will expound upon this circumstantial roulette that is largely dependent upon the investors’ execution power, which-depending how it’s executed-could be the difference of walking away with $10,000 or $60,000.

It should be kept in mind that walking away with $10,000 is not a good thing. Walking away with $10,000 means you’re lucky that you didn’t have a wash. In real estate home pricing, unlike other items of retail buying, you don’t reduce a property’s asking price by $500! Normally, price reductions are anywhere from $5,000, $10,000, $20,000, or sometimes more, depending on the value of the home.

With that in mind, walking away with $10,000 means you’re about a hair away from walking away with nothing or potentially writing a check at escrow. That’s not a good thing. Let’s take for example, in terms of the upside, walking away with $10,000 or $60,000 on a flip. Assuming one buys a property that goes up $80,000, and depending upon the entry and exit strategy of the investor, the net and gross can be materially and substantially affected. These elements are crucially important. Items that make a difference on the bottom line include loan selection. Other items include the selection or nonselection of upgrades, and about selling the property yourself. In short, there’s a multitude of elements that will contribute to a profitable or nonprofitable transaction. These are very important to cover and to remember, since they establish the core of a good investment strategy.

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