fliprent

How much do I pay for a property? 

This can be the biggest challenge for new investors.  How do I know how much to pay for a property?  There are so many factors involved that it can feel a little overwhelming.  In fact it scares some investors away from buying their first property.  I’m here to tell you that it’s not rocket science.  A class in using a spreadsheet program such as Microsoft Excel or learning to use a financial calculator might be the most difficult part of the process.   There are several performance measurements commonly used when valuing property.  Three measurements commonly used by investors include CAP Rate, Net Operating Income (NOI), and Return On Investment (ROI).  There are many other ratios and measurements used in real estate finance such as Gross Rent Multiplier, Debt Service Coverage Ratio, Operating Ratio, etc.  This information can be found in many finance books or at finance courses at your local Community College.

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The framing was completed about a week ago and the brick work is done on the rear.  For some reason I forgot to take pictures of the staircases inside.  Actually, I was meeting with other investors at the time and then followed them to see another property.  They are new to the house flipping business and wanted to see one in action.  I will snap some more shots this weekend and post them next week.  If you look up at the top, you can see where we added brick.  I plan to stucco the rear to give it a more modern look.  If my budget runs too tight I may decide to paint or install siding.

As some of you may have noticed on the first picture, we cut out and framed two windows on the rear addition.  They look very nice from the inside and bring in a lot of natural light.  They will show well come open house.  The natural light compliments the open floor plan and the windows as soon as you walk in the front door.  The area where the windows are located will be a sitting area behind the kitchen.  There is enough room inside for a table and chairs.  The block of abandoned shells behind the house may eventually be torn down to build Strip Mall.  At least that’s what I think I saw on the plans.  It seems that things are changing everyday here.

On a somber note, I stopped work this week while I sort through this mess that I am in the middle of with the city.  I received a letter from them pertaining to his property and the phrase “eminent domain” was contained in it.  Actually the letter did not come directly from the city, but instead from the organization overseeing this project area.  I’m keeping my fingers crossed on this situation because it has been a mess from the beginning.  We will see how this thing plays out soon… I hope.

Let’s get straight to the house flipping point…

 House flipping rule # 1 - Buy the smallest or ugliest house in the neighborhood. 

Being a house flipper means that you don’t mind the dirty work; or paying someone else to do it.  The main reason for this rule is based on future appraisal value.  The smallest house on the block has the biggest potential to be raised.  Once the rehab work is completed, it will appraise higher based on the new improvements, and the value of other houses on the block.  Conversely the largest house on the block is already carrying the weight of the market value.  Adding square footage for instance will not bring the same Return On Investment (ROI) as it would for smallest house.

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