Ask me anything about "Flipping" homes

[Tien]

Imagine you are desperate to sell your house because of a divorce and you are moving away.

U need to sell quickly.

I come in and negotiate with you and arrive at a price 70% below market value (difficult to do but possible if you are serious enough). We sign a contract for hte purchase of your home.

I show Investor A the home and Investor A says he is interested in buying it. I write up an "assignment" of contract and charge him 3-4 thousand for the writes to take the original purchase and sales agreement to closing and buy the house.

That's the penny tables of flipping. Actually 25 NL. Penny tables is looking for trash properties for investors and they pay u 10-15$ per house.

[maxtower]

What is your most successful approach to finding one of these desparate sellers? If they are priced 70% below, why hasn't someone already bought the place? Do you have to find them before they wind up on MLS?

[Tien]

I've never bought 1 house through the MLS nor do I attend to ever look there for deals.

I use specific marketing techniques to get them to call me.
I screen them over the phone.
I come to their house.
I negotiate negotiate negotiate (toughest part).

I send ugly yellow handwritten (or so they think) letters which get me a 30-40% response rate from that list I send to.


Nobody else is my competition because my competition is busy looking at the MLS or not being aggressive enough in marketing.

[gordongecko]

I thought I replied to this thread ealier but apparently my computer was acting cunty so here goes. I tend to do less marketting and rely on connections I have made with local banks in their REO (real estate owned) department. See when a bank forecloses on a property it has that debt on their books as bad debt. That directly affects (cant remember the ratio) how much they are allowed to lend. So alot of banks will allow something called a short sale. Basicaly a short sale is when you offer the bank less than the loan is for on a particular property. This is my favorite way to acquire property, and since I am not as active with flipping as some people so I find this method more effective then a huge marketting campaign.

As for what flipping is. I either flip the actual property (buy low, rehab it, and sell high), or I flip the contract, by using something called an assignment contract. Basicaly I make an offer on a property, and sell my contract with the property to another investor who intends to rehab it. Basicaly all I do there is tie up the property with a contract. This is the best way to get started in the business I believe, as you still have to go find good deals, but you can build some capital without having to invest any of your own cash (aside from marketting etc).
It get's tricky though. For one, most banks wont allow you to use an assignment clause when you make an offer on a REO property. So a legal workaround is make the offer under an llc name. I use the properties address so im sure its open. so you make the offer as "123 happy street llc". If the bank accepts your offer and you want to flip it to another investor, you form the llc and sell the llc to another investor. that costs about 150 bucks, but the general idea is you found a killer deal anyway. This workaround makes almost any contract/property assignable.

[Grasshopp3r]

Good point about the LLC angle, though I usually can get "or assigns" in the contract by telling the seller that I have a 1031 to place. My standard procedure is to look at foreclosures, make a long list of repairs and then make a conservative offer with the list and some photos. If it looks bad enough, the bank will counter me and I will counter back. I try to flip the contract as it is easier.

[gordongecko]

The problem with "and/or assigns" is most lenders wont allow you to buy REO properties with that in the contract. So you make the offer/contract with the llc name, instead of "your name and/or assigns" as the buyer. That way you just transfer the llc, so essentialy the same as assigning it for all intents and purposes, but the lender will allow it. It's the only way I know how to wholesale most REO/bank owned deals. It's also a great way to flip commercial property, since alot of commercial contracts also have the restriction on assignment. This all sounds complicated (it did to me too at first), but it gets really simple when you take it at face value, instead of trying to over complicate it. Basicaly your flipping contracts. That's it. You find a good deal, put it on contract, and sell your interest in the contract for an assignment fee. I've had deals where I had no capital or time to flip it, but it was such a good deal I made 8k by flipping the contract, without ever putting in a dime in the deal. Another way you can wholesale is double closing. It's more efficient if you dont want your buyer to know your profit margin on the deal, but it's more costly , and generaly your buyers shouldnt give a [censored], since they are in business too. Just dont get greedy, because there has to be enough profit in the deal for the person actualy rehabbing the house to make a nice profit.

Another thing you should all know about is Hard Money Lenders. Basicaly these are private investors who offer short term financing for rehab properties based on the deal itself. Not your income or credit. They usualy are active real estate investors as well, so they dont typicaly finance bum deals. They usualy finance the purchace, and renovation of the house. They dont typicaly do credit checks, and it's definatley a nice way to handle the flip without having to put your own cash up front. A nice thing about this is they make sure your not getting into a bum deal usualy, since their money is on the line.

Something else I am getting into now is acquiring property "subject to", which is basicaly assuming a mortgage without havin it transfered into your name. It's buying the property subject to exsisting financing (hence the name). There are alot of gurus out there who tout this, but you have to be careful that the deal is going to be +ev. This is a nice way to acquire rental property no money down. I also use this as a way to finance flips, but it makes it hard to get financing for the renovations. There is alot of money to be made both ways though.

Anymore questions? I am by no means an expert but I have studied all of this extensively for a long time now, and I feel competent enough to field most basic questions.

[bwana devil]

what city are you in? how many houses do you do per month? how do you feel the changing real estate market is going to affect your business?

[gordongecko]

I spend most of my time near chicago, in a northwest indiana suburb. A better question would be how many a year, since as I said I dont really flip full time. I am trying to get to the point where I am flipping a house every 45 days or so, but it's a tough market right now, and where I am it is definatley a buyers market, so I am focusing more on rehabbing multi-unit properties to hold on to for awhile. Alot of duplexes, quads, etc. are hitting the market where I am at, and they definatley stay rented.
The current market is just kinda meh. Some of my good friends who invest real time are raking in the cash, because of so many halfway decent condition single family homes hitting the auctions (and reo's), but the margins are def. smaller than when I started.

Flipping works in any market though, the only thing that seems to change is your holding periods / carrying costs(obviously shorter in a hot market), and the ammount of properties in distress (ideal for flipping). Right now I would hate to be a mortgage broker or a real estate agent.

[Grasshopp3r]

I have had banks not want the "or assigns" in the contract, but they have not held up a contract for that reason alone. It depends on their level of motivation.

[gordongecko]

[ QUOTE ]
I have had banks not want the "or assigns" in the contract, but they have not held up a contract for that reason alone. It depends on their level of motivation.

[/ QUOTE ]
The problem really lies in buying real estate owned by the banks through foreclosure. They typicaly make you use their own standard contracts that have a no assign clause in them. I cant think of a single lender I have dealt with for REO's that allowed this, but as I said it's rather easy to bypass via llc or a double closing.