I have a question - Posted by Kenyon Harris

Posted by dutch on March 30, 2006 at 22:07:40:

What is the property WORTH?

Run the numbers. If it’s WORTH 92 (retai), and you buy it at 87, thats 5K off retail. What were your closing costs to borrow the money and close? About 8K. So now you own a 92K house and have 100K in it.

Now what do you do with it (we call it Exit strategy)? Sell it to make your profit? Lets say you find an idiot that will pay 100K for a 92K house. Your closing costs will run 4-10%, so lets say 6K. So, you net 2K at closing.

So, that discount house COST you 6000 to own it.

Or, let’s say you want to rent it out. Rents for 1000 a month. Your PITI is 800 a month. Great, $200 a month cash flow. Let’s see, your 8K out of pocket, you get your investment back in ONLY 40 months. But the tenants quit paying after only 12 months, it takes you 3 months to get them out, and they do 10,000 in damage on the way out the door.

Oops, not such a good deal.


I have a question - Posted by Kenyon Harris

Posted by Kenyon Harris on March 29, 2006 at 22:00:39:

Well I’m a newbie and my wife told me to go get a newspaper, she told me you have to start somewhere. I looked in the realestate section and came across a must sell flexible seller ad, sounds good to me I said to myself. I called the seller she said she’s making two house payments and want to get out of one of them and it’s not the house she just bought.The house is 92,000 but reduced to 87,000 all fixed up except for carpet. I don’t know how to go about making this deal happen I’m excited and very nervous at the same time,do not know what type of form or contract to use because I want to flip the property. PLEASE SOMEBODY GIVE ME SOME ADVICE!


Re: I have a question - Posted by Mike-BC

Posted by Mike-BC on April 04, 2006 at 01:00:17:

As Dutch mentioned, you need to know the numbers.

This is especially true if you are flipping. Buy, rent and hold strategies are more forgiving as time is forgiving - you can be off a thousand or five and it won’t hurt you much over ten years of renting a property.

An old saying in REI is that you make money when you buy, not when you sell. Prove to yourself that you know how much the house is truly worth, don’t take the seller’s word for it. Look at what comparable houses recently sold for, check in with a realtor, or spend some money and pay for a professional appraisal. Can you get a further discount in price - how desperate, I mean motivated is the seller? Are you familiar with structuring a flip - what are the features of a flip, how is the purchase worded, how is the sale worded?

Then think about what you could sell the property for…are there any cheap and quick fixups that would add value? Can you sell it as a lease-option for a premium price and collect a premium rent at the same time?

I have asked a lot of questions - now some of my experiences. My main approach to REI has been buy, hold and rent but I have done a couple of flips over the years.

When flipping, you need to have both a seller and a buyer in place at the same time. In fact, it works best if you have a buyer lined up first. You know their wants and their limits as far as property features and price is concerned. Then you go out and find a property that fits their criteria. Once you have found a suitable property, get the property under contract. In BC, we refer to it as the interim agreement, it becomes final when we sign the papers at the lawyers office. When you sign the contract for sale, make sure you include a clause that allows you to assign the contract to another buyer. You also want to have an escape clause in the event that your buyer backs out. In BC where I live, this typically is a clause involving obtaining financing, Ex. Sale is dependent on the purchaser obtaining a mortgage.

I haven’t given you a blueprint, but I hope I have given you enough to direct further research.