Investors who choose to flip properties buy real estate with intention to resell it for a profit. In many instances they sell them almost immediately. They act as both, principle and middleman, buying at one price and selling it at a higher price. The flipper does not need a license and benefits from low overhead and fewer work hours.
Three types of flippers:
- Birddogs – primarily function as information gathers. They find potential deals and sell the information to other investors. Fees for the information can vary depending on the price of the property and profit potential. In some cases it could be as low as $500 to $1000, in others a percentage of the profit for information that leads to a purchase of a property.
- Dealer or wholesaler – just like birddogs they locate properties for other investors. They find bargain properties and sign purchase agreement with the seller. Wholesalers provide much more that just information; they control the property with the purchase agreement/contract. Also wholesaler might assume a certain degree of risk by putting up earnest money to secure the deal. Exit strategies are: assignment of the agreement to another investor; or, if margin allows, closing on the property and selling it outright. A word of caution! Not all states permit assignment of contract by unlicensed individuals. It’s highly advisable to do your own due diligence and check with your state’s regulatory board to make sure you are not violating any local laws or regulations by doing an assignment of contract (don’t always believe what you hear at you local REIA meetings, take an extra step to protect your business).
- Retailer or Rehabber – the goal is to fix up the property and sell it at a retail price to an owner-occupant or a land lord. Compared to the previous two types, the retailer puts up the most money (own cash or borrowed), assumes the most risk and anticipates to make the biggest profit on each deal. Although it’s a lucrative venture, retailers are limited by financial resources and number of properties they can buy and rehab simultaneously.