Special offer

Flipping Houses: The Down & Dirty

By
Real Estate Agent with Prudential Fox & Roach

So you wanna try flipping houses?  I’ll give you some pure basics to get you started.

1.  Locate an undervalued home for sale that is structurally sound but requires some pretty extensive cosmetic work.  When I say cosmetics I mean rehabbing the siding, windows, kitchen, bathrooms, carpets, appliances and painting the walls.  To find an undervalued home, I would recommend using a Realtor.

2.  Once you’ve found your target home,  you are going to need financing.  One source of funding that rehabbers use are “hard money lenders”.  These types of loans are secured by the value of the house you are going to flip and are usually issued by private investors.  Talk to your Realtor about finding hard money lenders or check with your local real estate investing group.  For those of you from Bucks County, the local investing group would be DIG (www.digonline.org).

3.  Ok, you’ve found the home and got the financing.  Now is time for the number crunching.  First determine your After Rehab Value or ARV.  This is the value of the property once you’ve finished all the cosmetic work.  This can be determined by your Realtor.  Here is the basic format for determining your bottom line and what your offer should be for you to make a minimum of $10,000 cash on the flip (The Golden Rule).

ARV minus:

  • Repair Costs
  • Holding Costs (monthly loan charges)
  • Sales commission (5%-6% of ARV)
  • Closing Costs ( transfer taxes on the buy and the sell, 1% for each in Bucks County)
  • Hard Money Costs (points-probably around 3%-5% of the loan)
  • PROFIT ($10,000 MINIMUM!)

Now, what’s left is what your offer is going to be.  Simple right?  Again, for more details please consult a real estate professional.

BUCKS COUNTY EXAMPLE

Your average home in Falls Twp is selling for around $230,000; so we’ll make that our ARV.

ARV $230,000 minus:

  • Repair costs $20,000
  • Holding costs $6,000 (takes three months to flip and sell)
  • Commission $11,500 (5% commission on the sale)
  • Closing Costs $4,000 (transfer taxes of 1% on the buy and then on the sell, estimated)
  • Hard Money Costs $5,000 ( 5 points estimated)
  • PROFIT $10,000 MINIMUM

EQUALS YOUR OFFER $173,500

Now, can you find houses selling for $173,000 in Falls Twp?  You bet.  I’d love to show them to you!

 

-Keith Reilly

www.BucksCountyRealEstate.wordpress.com

Comments (13)

Todd Clark - Retired
eXp Realty LLC - Tigard, OR
Principle Broker Oregon
What a great 1st post! You really broke down the flipping process to a simple and easy to understand process. It amazes me how many investors thibk they got a great deal on a home but didn't run the numbers 1st and ended up losing money in the past 3 years. Welcome to the rain and look forward to seeing you around.
Nov 25, 2008 06:01 PM
Joseph D. Federico
MVP Realty - Naples, FL
Southwest Florida Homes with Joe Federico

Keith-I will 2nd that, You really have a great 1st post. Welcome to active rain.

Joe Federico

"Not Your Average Joe"

Nov 25, 2008 11:16 PM
The Trumm Team Omaha Homes for Sale, Real Estate
Keller Williams Greater Omaha - Omaha, NE

Welcome to ActiveRain!

If you would like a few tips on getting the most out of ActiveRain, please visit my blog Welcome to Active Rain.  It has a few simple steps of what to do now that you have joined.

If you ever have any questions, just let me know.

Troy Trumm

Nov 25, 2008 11:59 PM
Jason Ellis
Coastal REO Solutions - Myrtle Beach Short Sales & REO's - Myrtle Beach, SC

Great start to active rain -- be careful it is addictive -- let me know if I can help you out in Myrtle Beach, SC -- JE

Nov 26, 2008 12:04 AM
Dan Magstadt
Paramount Residential Mortgage Group, Inc - Lake City, FL

Congrats on your first post - Welcome to ActiveRain!!

DM

Nov 26, 2008 02:34 AM
Greg Steffens
Mountain Country Realty - Lake Arrowhead, CA

Keith - Welcome to Active Rain and congrats on your first post.  Be sure to spend some time looking around at what and how others are blogging here - it is a great education and lots of fun.  Looks like you're off to a great start...keep it up!

Nov 26, 2008 03:23 AM
Pam Simpson
Bob Leigh & Assoc., LLC - Senatobia, MS
GRI, Broker-Assoc.

Keith-Welcome to Active Rain.  I agree with the others you started out with a GREAT first post!  I work a lot with buyers who are looking at buying REO or HUDs, but they have been owner-occupants (not investors).  Great work at breaking down the numbers.

Nov 26, 2008 04:28 AM
Steve Vennemann-Hennepin-Dakota-Anoka contract for deed property-Ramsey-MN
BoardWalk Premier Realty INC - White Bear Lake, MN

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On behalf Http://www.mnlakeplace.com  we are happy you became a member of action rain and we wanted to welcome you to http://www.actionrain.com . It is a very good site to learn and network and meet a lot of real estate agents/brokers and mortgage consultants.

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Nov 26, 2008 04:59 AM
Everard Korthals
---Preferred Lifestyle Advisors--- - Lancaster, PA
Mountain Realty

Welcome to Active Rain. This is a great place to learn and share with others. IF ever you were to have any questions then feel free to contact us and we'll try to help. Please take a look at our blog for links to valuable information in our sidebar that you can use to navigate this extensive network. Subscribing to our blog is also a great way to read our blog straight from your home pages. We also suggest taking a look at the Active Rain Wikipedia group for resources that may be valuable to you. We hope you have a great day in the Rain! All The Best-

Sincerely, Active Castellum

Nov 26, 2008 09:13 AM
Sergio Rebollo Jr.
Real Estate TeamMates - Miami, FL

Keith....Welcome to ActiveRain.  This is a great community to network with others as well a great place to learn from other's experiences and knowledge.  I've enjoyed it; I hope you enjoy it as well.  Congrats on your first post.

Sergio Rebollo Jr.
Exit Prime Realty
Coral Gables, FL  33134
305-582-4062

Miami Short Sale Specialist - Profile

Nov 26, 2008 12:19 PM
Keith Elliott Jr
KEIRE Realty Group - Manassas, VA
Principal Broker/Owner

Hello Keith,

Welcome to Active Rain and congrats on your first post! The opportunities to learn and network are incredible here. Best of luck to you!

-Keith

Nov 26, 2008 02:49 PM
Marcy Fedalei
Keller Williams Realty - Spartanburg, SC

Great start on ActiveRain! Welcome and thanks for sharing your thoughts and ideas.

Nov 26, 2008 11:28 PM
Yvette Gardner
Keller Williams Realty, Spartanburg, SC - Spartanburg, SC

Welcome to the Active Rain community. This is a great site with lots of information.  Have fun with it and hope to see more of your blogs soon! 

Nov 28, 2008 10:20 PM