Flip This House – Baltimore
The Cable syndication, “Flip This House” was very popular for a short period. Each episode typically followed a new investor or couple as they purchase a fixer upper, renovated it and sold it; with a bit of luck for a profit. That approach worked nicely when prices of homes were rising quickly.
If you watched the program, though, you saw that the process can be very stressful. There are always unexpected challenges involved in real estate investing, and this is especially true with homes that need a lot of work. But buying, repairing and selling a fixer upper is just one of the ways people flip a house.
An extra approach is the true “flip” in which you never own the home. The thought here is to make a low offer on a home that needs help and, once the bid is accepted, sell the contract. This has to do with writing the offer in such a manner that you have the right to assign it to somebody else. You also have to be sure that the home has a lot of potential, consequently you can get paid say $1,000 – $1,500 and still leave ample of profit for the investor who will in fact repair and sell the house.
The benefits of this approach are that you risk more or less no money of your own, except you can’t finalize the contract and you lose your earnest money or “good faith” deposit. The majority investors who do this have established ways around even that possible possibility. The disadvantage is that like the former plan, this works best when home values are going up quickly; somewhat we may not see once more for a while.
Consequently how do you flip this house today, when times are harsh? How do you do it still in the worst of Baltimore neighborhoods, where houses are sitting vacant and prices have plunged? You use a diverse approach overall; one that is particularly successful in the Baltimore poorest neighborhoods.
You might not know this, but there are places where houses are selling for a few thousand dollars. Look around the country and you’ll find these pockets of “real estate poverty.” Search online for towns in Kansas or Oklahoma, for instance. For the sake of this rationalization, we’ll look at Detroit, Michigan, where a lot of homes sell for less than a thousand dollars.
You read that right, by the way. As I write this article (2009) there are homes listed for as little as $25. In actuality, I checked online a minute ago and discovered a duplex for $99. There were dozens for a few hundred dollars or less. As you may possibly guess, these are in dreadful neighborhoods.
This new approach starts with low-priced houses where folks still live and rent. The thought is to buy a home for say $1,000 cash, Have the home cleaned, replaced broken windows, doors, painted, new kitchen sink and cabinets, new shower and new toilet; selling it firmly “as is. Then sell it for $8,000 to any renter in the neighborhood who has steady employment. “What you offer for the buyer is discounted financing with roughly nothing down.
From the renter’s perspective, this is an opportunity to buy for less than the cost of rent. Potential buyers may be paying $200 per month for rent on the same block as your house, and you can sell to them for payments of $200 per month. Naturally you will have some failure to pay, even with payments this low. Although if you are risking only a few thousand on each home and quadrupling your investment (not counting interest) on those that work, you can afford to do a few foreclosures, and then without delay resell the house the same way.
According to my research, more than a few investors are using this approach. As long as you have the cash, and you can sell for a great profit and still finance the deal for the buyer with lower than rent payments, it is a practical strategy. Even a home that you buy for $30,000 may be sold for $40,000 and still be less expensive than rent for the new owner.
Posted by Carlos Sagastume on April 12, 2009. Filed under HUD Homes.
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