How To Make Money on Foreclosures
Flipping houses for profit is not as easy as some people may think it is. The process of flipping a house involves a lot of hard work. You have to be prepared to commit yourself to the hours needed for this side hustle. However, if that sounds like something you can handle then read on!
If you’re looking for a way to get into the real estate market and make some serious money, flipping foreclosed homes is one of the best ways to do it. The process of flipping houses is simple. Buy them at auction after they’ve been foreclosed on. Do renovations or repairs as necessary, then reselling them for profit. If you want to learn how to flip houses in this brief article!
Flipping Houses 101 – Buying a Foreclosed Home
Flipping houses can be a career. It can also be something that you do once or twice, for some extra cash. In order to make money flipping houses, you’ll need to know how to do it right. Here are the basic steps to follow if you want to flip a home and sell it at a profit.
1. Find the Right House to Flip
The first step in successful flipping of a house is finding one you want to buy and work on.
There are several ways that people go about this, from hiring an agent who specializes in selling foreclosed houses, to looking through the local newspaper for foreclosure notices and buying properties at the government auction.
Whichever method you use, make sure that the home is in good enough shape to be worth flipping. A quick and inexpensive fixer upper might not sell for much of a profit, so don’t go after anything like that if you’re just beginning!
2. Find Financing for Your Flipping Project
The next step is to get financing for the property.
This means contacting a mortgage broker or banker and applying for a loan, as well as securing any other financing you might need for your construction work.
If you’re short on cash for renovating needed parts of the house, money from a hard money lender can help bridge that gap until the home is sold. Use a reputable lender and you should have no problems getting the financing that you need to move forward.
3. Renovate the Home
Once you own the home, it’s time for some renovations. This is where your construction skills come in! Putting in new floors, painting, adding on a porch or other amenities are all things you can do as part of the renovation phase. Make sure that when you’re ready to sell, the home is in good enough shape to make a profit!
4. Refinance and Sell
One of the benefits of flipping houses is that by the time you’re done with it, your house is worth significantly more than when you bought it. You can use this fact to your advantage by refinancing the house and using the money from the refinance to help pay off any mortgages that you used for renovation costs. The remainder of the money is profit, and you’re done!
5. How to Flip Houses
Flipping houses is an easy way to make some cash if you know what you’re doing and have the capital. It can also be a lucrative career, as it is with any investment where you can turn over multiple properties for a profit. If this sounds like something that interests you, pick up a copy of one of the many “flipping houses for dummies” books.
7 Qualities of Successful Flippers
1. Effective and aggressive marketing skills
Successful flippers know how to get their word out. They have the ability to network and find ways to let people know about their investment opportunity, or they advertise effectively enough that they don’t need a large pool of potential buyers in order to make a sale. Either way, you will want an effective marketing strategy if you’re looking to fix and flip homes for profit.
2. Creativity and a knack for design .
Successful flippers get the most bang for their buck by being able to do more with less. Whether it is finding ways to save money on a home purchase or figuring out how to add value without spending money on extra projects, a really successful flipper will be able to take an ugly duckling and turn it into a swan.
3. The ability to manage tight deadlines
If you’re going to flip houses, there’s no room for error. Every step of the way needs to be done on time and on budget. It’s very easy to fall into a hole if one small part of your project goes wrong. For this reason, make sure that you have the skills necessary to manage what can sometimes be complex projects in a timely manner.
4. The ability to handle stress and pressure
Flipping houses can be fun, but it’s not always easy.
There are often unexpected troubles that pop up during the renovation process or when you’re trying to find a buyer for your project. Successful flippers learn how to manage these problems before they go too far out of control.
5. A strong work ethic
There are a lot of people who think that they can make money flipping houses, but very few actually do so.
Successful flippers know that there is no substitute for hard work and long hours, as well as reliable team members if possible.
If you’re not willing to put in the time and effort, you will have a very hard time turning a profit after rehabilitating your home.
6. A background in real estate or home renovation
It’s very tough to generate a profit flipping houses unless you have some experience doing so.
You don’t need to be an architect or contractor, but having basic knowledge of construction and home renovations will make things go much faster and smoother in the long run.
If you’re just starting out as a flipper, it would help to shadow someone who has been doing it for a while or attend workshops and courses that can help you learn the ropes.
7. Location, location, location!
There’s an old saying in real estate that goes something like “location, location, location”, but there is also such thing called “investment appeal”.
The homes that you look to buy for flipping should have some kind of investment appeal as well.
There are some houses that will languish on the market long after they’ve been flipped, because there aren’t many people looking for a home in those locations, and it will be very hard to get top dollar for them.
Benefits and Drawbacks To Flipping A House
Benefits
- There is room for profit in the market
- Prices are low and affordable
- This is a medium sized investment
- There are great tax benefits
- With the right market conditions you could make a huge profit
Drawbacks
- This is not for everyone, only if you’re very creative and willing to work hard.
- It can be time consuming and stressful at times.
- There are also risks involved when it comes to inexperience.
- You need money to invest
- The market might sink and become unstable
Buying Foreclosures
Marketing a house is one of the most important steps in flipping a house. One will need to advertise their home in order to find buyers, otherwise they won’t be able to make any money on the deal.
Advertising can be done by word-of-mouth, by putting posters up around town, or by using billboards or signs. Marketing can also be done online by blogging about flipping homes for profit and linking some of the pictures of houses that you have flipped.
How To Approach A Flipping Deal
The first thing that you will want to do is talk with your realtor about how much commission they charge for each property depending on which type it is.
The next step would be whether or not you are going to be letting your realtor sell the property. A lot of people think that it’s a good idea to have their realtor do all the work, but this is not always the case.
It usually depends on the type of commission they charge and also how much time they spend selling it.
Your next step will be to list with other agents in your area if you pick not to have your realtor do it. This is because there are a lot of people out in the world, and the more agents trying to sell your property, the better chance you will have at selling it fast. It’s best that you continue to keep your realtor informed about what all you’ve done so far.
Be sure that you don’t forget to have a clear detailed description of the property. The more information you put in your listing, the better chances there are of someone wanting to buy it and then ultimately going through with it. So what you will want to do is include your contact number along with all other properties that the home has been previously listed for sale.
The next thing that you will want to do is make sure that there are no major things wrong with the house. If there are then you will need to get them fixed as soon as possible because this may turn off a potential buyer and also lower your commissions. If it’s something small and not really noticeable, then it doesn’t matter. It’s important to keep your property looking its best so that it will be sold in no time.
How To Find Good Flipping Opportunities
How do you find flipping opportunities?
There are different approaches to finding flipping opportunities. People will often search through websites that advertise properties to buy and flip, or one could simply keep an eye out for homes that are under-construction.
A lot of people have found success in watching house-buying shows on TV, but it’s important to keep in mind that these shows may be staged for entertainment purposes and are not meant to act as a blueprint for how flipping works in the real world.
Your best bet is to just get out there and start looking for foreclosed properties. If you see something that interests you, don’t hesitate to ask the owner if they are interested in selling it!
Remember though, make sure you have enough money saved up in order to be able to afford your down payment before doing anything else.
Buying Foreclosed Properties 101
Here’s what you need to understand before getting started:
1. Flipping a foreclosed house needs a lot of fixed costs up-front before you can even make your first deal. You have to pay house flipping courses, travel expenses for going out and looking at properties and the biggest fixed cost is real estate property inspection. You have to be willing to take 3-5 hours out of your life to go and inspect properties you are going to buy, so the less expensive the property is, the better it is for you.
2. Do not expect instant success with house flipping. There is no such thing as a ‘get rich quick’ scheme. It takes at least 6 months of hard work and dedication before you start seeing some small results. You may have to wait 3-5 years to sell the house.
3. Do not try to flip houses unless you are willing spend all your time looking for them. You have to look for abandoned properties, fix them up and then sell them. This means you have to be willing to spend all your spare time driving around looking for opportunities. If that is something you don’t want, then house flipping may not be a good option for you.
4. Do not expect that property prices will always go up in the future so that you can keep making money. For example, you buy a house in 2019 and sell it in 2021. So now you’re thinking ‘I’m rich!’ until you find out that property prices have dropped and now the market value is only worth $100K so instead of $200K profit, you’ve just lost $100K.
Foreclosed Properties FAQs
What is the 70% rule in house flipping?
Many house flippers use it as a rule of thumb. It helps them determine whether or not they should buy a particular property for flipping. The rule states that if the total rehab cost is less than 70% of the after-repair value, you should buy it and fix it up.
Why follow this 70% rule?
This rule is based on the assumption that, after you complete the rehab and sale of a house, 30% of your total profit will go towards covering the cost of repairs. This is why it’s important to only buy properties below 70% ARV (after repair value).
What if I deviate from this 70% rule?
You can still make money flipping a house in this case, but what does it mean for the Total Expense Ratio (TER)?
or TER = Rehab Cost/Profit
If you deviate from the 70% rule, you will have a higher TER.
In the long run, it’s more profitable to keep your TER below 10%.
But what if your profit target is 25%?Then having a high TER won’t matter, because even with a 15% TER, the 25% profit is already very good.
How do you make money from a foreclosure?
The short answer: you buy the house for less than it’s worth, fix up this property and then sell it for a large profit.
The slightly longer answer; you need to familiarize with local tax laws and real estate contract law. It can be complicated. There are lots of books with all that information. If you are interested, I highly recommend the BiggerPockets Ultimate Real Estate Investing Blueprint. I can’t legally give investment advice anyway.
But I can give you my best tips for how to make money from a foreclosure, even though I’m not a lawyer or an accountant.
What is the cheapest way to buy a foreclosed home?
There are basically three ways to buy a foreclosed home. You can:
- Buy it at the foreclosure auction.
- Buy it when it is going through a short sale.
- Or you can buy it directly from the bank, after their Foreclosure Process has ended (normally takes up to 6 months).
Looking for some house flipping tips? This article has some useful tips.
Always remember that there is no such thing as a ‘get rich quick’ scheme and it takes at least 6 months of hard work and dedication before you start seeing some small results. If you cannot commit to hard work, then flipping houses is not for you.
However, if this post helped clarify some of your doubts about house flipping and have decided to try it out, then I am happy that you now have a basic understanding of how the process works!
Disclaimer : This is purely informational. It’s not a how to guide. Use it as a starting point on “house flipping” as a side hustle. I am not an expert, nor do I profess to be one. Always do your own research before investing in real estate .
