fliprent

With the current real estate market and the impending recession, why would anyone want to flip houses?   The answer may just be because of the current real estate market.  In these times houses can be found for huge discounts.  Some investors are buying properties at 50 cents on the dollar or less.   Unfortunately there are many distressed homeowners and properties in times like today.  Personally I am not one to target homeowners that are about to loose their homes to foreclosure.  In many cases homeowners can keep their homes and should speak with a foreclosure counselor before talking to an investor.  However, many property owners want to get rid of property that has been abandoned, distressed, inherited or houses that they cannot make the payments on.  These are great opportunities for house flippers.    

House flipping takes on two different meanings in the real estate investment world.  There are house flippers that buy distressed properties, fix them and sell them.  There house wholesalers that “flip” houses to other investors without ever really owning them.   I happen to be the former.  I like to find distressed or abandoned houses and rehab them.  This way I am actually contributing to the community and the economy at the same time.  The biggest question right now is what my exit strategy will be.

 Flip or Rent?

This is the question that I have to ask myself before going into each property.  A few years ago the answer was obvious…flip it as fast as you can…period!  The market today is quite a different story however.  The location is the main factor that I use to determine my exit strategy.  Revitalization areas,  planned shopping malls and new schools are all factors that play into location.  These are some of the best areas to attempt a fix and flip. 

Another way to analyze property is to use two well documented appraisal approaches.  The first is known as the Income approach.  This is what appraisers use to determine the property value of a rental property.  This approach uses items such as cap rate, net operating income, gross rent multiplier, and potential income of the property and compares it to the cost.   This formula can be used with single family homes as well as multi-unit properties.  Who said that house flippers can only flip single family homes anyway?

 The other approach that is commonly used for single family homes is the Comparable Sales approach, also know as comps.   This approach takes the recent sales price of comparable homes within a certain radius.  Combining these two approaches will help a house flipper determine his or her exit strategy.  Ultimately the best time to sell a home is in a sellers market but the best time to buy is in a buyers market.  These two markets cannot co-exist but they can have a happy medium.   In order to take advantage of both markets, the best approach may be to buy, fix, rent, and sell later. 

The one thing that cannot be made by man is more land.  However, making more people is in our control.  These people will always need a place to live.  The real estate market MUST eventually bounce back.  With this knowledge smart investors will be in the right position at the right time.