Investment

Getting Ahead by Flipping Houses

If you have a solid business plan and are willing to work carefully while assuming some risk, it is still possible to make a nice living in foreclosure flipping. Although there are no guarantees (as we said, there is some degree of risk involved, just like most investments), people are still realizing excellent returns from flipping houses.

What Is “House Flipping” ?

Flipping a house is nothing more than Econ 101: buy low and sell high. All that’s involved is finding a property that’s run down and in need of repair (this is the most common way of flip real estate) or a piece of real estate, usually a single-family dwelling, that is “distressed” – that is, the owner is in danger of foreclosure, or the property has been repossessed by the bank.

If you go with the former – which most of those engaged in house flipping do – you’ll need to have some serious construction and remodeling skills, or be prepared to hire it done. The problem there is that outsourcing your renovations like that can be quite expensive and eat into your profits quickly. Therefore, in order to maximize return on investment, most people in house flipping with run-down properties try to do as much of the renovations themselves as possible.

The other method of how to fix and flip real estate, which is to obtain a property from a “motivated seller,” is easier in terms of labor – but you may not realize as high a return on investment, and of course, it’s vital to have a buyer lined up ahead of time if you don’t want to be stuck with a major liability.

Getting Started

Local banks and mortgage companies are one source to go to when you get started flipping houses.
Another source is local real estate auctions. Note the operative word: “local.” If you start your house flipping enterprise with online auctions, you’re liable to find that such auctions are extremely competitive since they’re open to anyone with an Internet connection; the price can get bid up very quickly.

Getting Capital

The fact is that very few people – even those who know how to flip a house and have a lot of experience at it – have the financial wherewithal to pay in full for such an investment up front. This is especially true however for those who are just starting out in flipping houses. There are however very short-term mortgages available; if you can qualify, this may be the best option for you. Keep in mind that the interest rate is likely to be substantially higher than normal, so be prepared to make the transaction as quickly as possible.

Flipping houses is a very effective way to increase your cash flow, provided you work carefully and plan ahead.

Cash Flow: Tips for Generating Profit Through Real Estate Investments

Cash flow is a financial term real estate investors should understand. Most property investors make their biggest mistakes by not forecasting cash flow properly. Cash flow is the profit remaining after all expenses have been deducted. One of the most common errors real estate investors make is underestimating the expenses associated with rental homes.

What is cash flow?

When calculating cash flow, the PITI formula is used. This acronym stands for principal, interest, taxes and insurance. These are the four components of a mortgage payment that should be allocated as debts when calculating cash flow. The often overlooked expense is maintenance.

Maintenance costs can turn a positive cash flow into a negative cash flow with one unexpected repair. Replacement costs for big ticket items such as air conditioners or a leaking roof can consume budgets and eat up cash flow. Investors have to dip into savings or use profits from another real estate investment to cover the negative cash flow.

It is a good idea to estimate seven to ten percent for routine maintenance when determining cash flow. Investors should also budget eight to twelve percent for a property management company. This expense can be eliminated if the investor lives nearby and can handle small repair jobs. Handling the repair work on their own can increase profit margins and yield a positive cash flow.

Investors who buy homes as rental properties make another investing mistake by setting rent prices too high. The house can remain vacant for months until a tenant is found. This is particularly true if the rent amount is in the middle to high average of other rental homes in the area.

Negative cash flow is generated each month the rental is unoccupied. This cuts into profit margins for the year. It isn’t worth holding out for a higher monthly rent if the unit remains unoccupied for several months.

Cash flow deficits can be eliminated once the property is rented. Charge a lower rent to attract tenants. Increase the rent at each lease renewal until the property is renting at the price you want.

Most tenants won’t want to go through the expense of moving once they live in the home. They would rather pay the increase in rent. This keeps a steady incoming cash flow for your rental properties.

Cash flow can mean the difference between success and failure for your real estate investment business. Plan your expenses wisely. Don’t project too high of a return on your property investments; otherwise it will cut into your cash flow. A sure profit in hand is always better than the chance at a higher profit later.