With the influx of REO properties into the market, this is a good time to again consider flipping those properties as an investment strategy. However, what is different today is that it’s not simply a buy and sell scenario where a raising market will insure a profit. It will take an eye for value, understanding the cost that will be incurred in upgrading the property and knowing if it will possibly be necessary to rent the property for a period of time before the market will yield you the profit that you want.
Because of the different market dynamics, the amateurs have all fallen by the wayside. There will be less competition for those houses that need some TLC. Buyers often cannot see past the wear and tear of a foreclosed property to understand the potential underneath.
One of the criteria that will need to be considered before pulling the trigger on an acquisition is the neighborhood. One of the best things to look at is the difference between the price you can acquire the property for and the recent sale data for that particular neighborhood. Is there enough room for you to carry the mortgage for a month before you can rent it or put it up for sale? How much additional investment is needed? Is it simply cosmetic? Or is there real capital improvement that needs to be done?
Calculate the purchase price, the cost of improvements and the carrying costs and see if you can make a reasonable profit or if the current rental rates will cover your monthly expenses. This is not a step to take lightly. Success in real estate investment is 90% planning.
One of the other criteria to look at is the seller’s motivations. Real estate is an expensive poker game. Feel out the seller, the agent is not allowed to divulge the seller’s motivations, ask why they are selling and watch for their facial expression. You will be able to tell how urgent the situation is by their reaction. Their motivations can range from the house being an inheritance that they want to liquidate or they may be facing foreclosure. Their level of urgency will let you know how to negotiate and if you will be able to get the property at a price that will fit into your property and neighborhood analysis.
So, you are going to be looking for houses that can be purchased at a discount to the market yet can be improved aesthetically, yet inexpensively. Flipping the house will be the relatively easy part. If you’ve done your planning and purchasing properly all you will have to do is bring the improvements in on budget, then list the house slightly below market value for a quick sale.