For the beginning investor. You’ve seen the house flipping shows on tv where the investors find a fixer property, swoop in and buy the home, renovate and then sell for a huge profit. Easy. Of course, we all know that very few things come as easy as they sound and real estate investment, specifically flipping houses, is no exception. With a significant amount of money at risk, it’s best to be fully prepared and knowledgeable about your market.
Every investor is looking for a deal, so competition is extremely strong. If you’re new to the scene and want the best shot of buying an investment property, follow these points before you make a move:
1. Create a network of contractors, architects, structural engineers and development companies.
Unless you have an experienced eye for fixing homes, you’ll need vendors you trust on your team. Many fixer-properties are sold quickly due to word of mouth and pre-existing relationships. This group of professionals may know about upcoming properties before they hit the market so it’s good to create your own insider circle.
2. Keep a sharp eye on the market.
It’s a common site to see investors and their teams waiting outside of the first (and many times, the only) open house so they can be the first ones to see it. To have a shot, you need to be there on day 1, so keep your agent on his toes, your professional network at the ready and your eyes and ears on the ball.
3. Know your competition.
You’re competing against seasoned investors who know they’re spending limit, acceptable profit margin and what the area will bring once the home is completed. Most often, their teams of professionals will have already assessed any potential structural pitfalls of the property and know whether or not it will work for their business plan. This includes things like foundation issues, dry-rot, termites, geological concerns, plumbing and electrical, among others.
4. Know your cards and have your finances in order.
Come in knowing what you can comfortably spend and be ready for a bidding war. All-cash, non-contingent offers and short, 1 or 2 week escrows, generally prevail. Writing a non-contingent offer basically means that once your offer is accepted and your initial deposit is sent to the Seller, you are locked in. Cancelling the escrow will mean a forfeiture of your deposit (usually 3% of the purchase price) and nobody wants that.
Investing in real estate can be an excellent source of income. To be successful, it takes research, a rock solid business plan and the right team. It’s true, there’s always the chance to make an easy sale on a flip, but anything can and will happen in real estate that seem to never be present on those tv shows, so be prepared. After all, if something goes south with your investment, there’s no commercial to ease the loss.
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John Aaroe Group