Five Types of Flipping Properties

We see the word “FLIP” all the time on TV, in the news, and as we talk with each other.  Flipping properties is the buzz word in the real estate business…and everyone wants in on it!   But what does it mean?  And is it legal? 

Flipping actually means buying a property and reselling it within a short period of time (usually within a year), as opposed to holding on to a property long term as a rental.   Most of the time it is perfectly legal, but as in all business deals, there are dishonest people out there.. so beware.

TYPE #1:  Buy it.  Fix it.. FLIP

The first and most basic form of flipping is the fix and flip.  As the name implies.. you purchase a property that needs a little face lift, fix it up, and sell it to a person who will live in the house. I’ve done this myself a few times and had great success. 

You can make between $10,000 to $50,000 in one deal depending on how good you are at finding good deals and whether or not you are handy with a hammer.   The problems lie with spending too much on the house and underestimating the cost of repairs and length of time to resell the property.   Don’t forget to add in your selling costs!

TYPE #2:  Buy, Fix, Refi, and Lease

This option is similar to the one above but with a crucial difference.  Instead of selling when you’re finished with the redo, refinance the home and get your investment back out.  Then lease the home to a potential buyer with the option to purchase.

If you’ve done your math correctly, you should have most or all of your investment back and you will save money on broker fees and the higher tax rate than if you sold the house within the first year of your initial purchase.  Also, the rent should cover your mortgage if your local rental market is strong.  (if not, you might consider an ARM or interest only loan.)

TYPE #3: Buy and Flip

This is the quickest of all deals.  If you’ve found the best deal in an area and you don’t want to mess around with construction crews and time, just buy and sell.   The numbers may not be a large of course, but it fast money, and you can do as many of these as you can locate the properties!  This works especially well if the property is in a HOT area and doesn’t need all that much work.  

If you’re really good at finding homes, you might even consider getting a network of investors together and doing this ‘wholesale’.

TYPE #4:  Being a Bird Dog

While this isn’t really Flipping… this ties in with Type 3 above.   You could work with a group of investors and find potential deals for them.   You might look for distressed properties and help gather information on cost for repair or rehab.   Expect to make $500 and up depending on the price of each property for this service.

TYPE #5:  Pre-construction

In some areas of the US, the market has been appreciating on a monthly basis.  In a recent seminar that I attended, we discussed the Naples, Florida market where folks were buying condominiums for $500,000 and the same condos were selling for $700,000 by the time they were completed!  It was a wild time in Florida!  

The leader of the seminar was happily telling about how she had purchased several condos and was hoping to make $.5 million any day!    Then Florida was hit with the 4 hurricanes and the real estate market went WAY down.   She’s still holding on to those condos, hoping to get her money back.   So I guess I telling you that there are some HUGE possibilities out there…and some people are making big money.   And some people aren’t.   So be careful out there…  And remember to watch your cash flow.  I wouldn’t want anyone to get hurt!