You know something is fairly common practice when it gets a reference in a sitcom. A common real estate practice got just that treatment when an episode of a popular show followed the two main characters as they bought a wholesale property (read deep discount) and then fixed it up and sold it for a remarkable profit. At least, that is what they intended to do.
Unluckily for the two characters, they did not have the right experience to take up the role of real estate property investors. At the end of the episode the pair decided to return the same property they had acquired to the initial owner for a price. In the process the two had lost plenty of their effort and time in addition to incurring an unnecessary cost.
Buying a wholesale property at a reduced cost or just enough to cover what it is currently worth and then reselling it after some repairs and renovations is known as flipping a property and can serve not only as a quick way to make some real estate cash, but to increase your business acumen in the process.
You learn new tricks and make new networking connections with every property you flip. And along the way, you should be making some tidy profits.
Consider this situation, you locate a suitable wholesale property that is in a relatively good neighbourhood but requires a good deal of restoration. The amount being advertised for the property is highly discounted making it lower than the market rate. This is the kind of situation that you expect because you will be required to put in a significant amount of money into the house in order to get it into a sellable condition.
Once you are through renovating the property, you carry out an appraisal and find out that the property’s worth is in the range of other properties within the area. When you are careful at how you spend your effort and know how to do your shopping, then the money you use to renovate the property should not put the property over the market value. After completing the renovations, you can make a good profit by selling it and then proceed to the other piece of real estate you would like to flip.
Property flipping does not involve major things and it ought not to involve such things. It is unreasonable to buy wholesale properties, which require new flooring, roofing or any other major repairs, unless the property’s cost is that of a fire sale.
You should not even bother yourself with structurally unsound homes, unless the property is being given away freely. You definitely want to use only a few thousand dollars bringing the home to a rentable condition rather than using tens of thousands. If you are a smart property flipper, you will be able to identify problems that can be sorted out quickly and at the same time at a cheaper price leaving you with a profit.
Wholesale properties that are being deeply discounted should be approached with caution. You should understand why the wholesale property is going through flipping. Is the bank selling the property since it cannot hold onto it any longer? Is the property being sold by a desperate seller who has tried other avenues of selling it without being successful? Or is there a hidden agenda concerning the property?
Ensure you go through a detailed property investigation prior to finalizing the deal and although this applies to other transactions involving real estate, it is more essential for wholesale properties. It will only be to your disadvantage if you spend effort and money on the property and in the end discover that the property has outstanding back taxes, which makes it impossible for you to get its title. Furthermore, this makes it harder for you to sell it at what it originally cost.
Never leap into a flip (real estate writers have wanted to say that for years) even if it seems like the deal of a lifetime. Remember, it is better to have moved on to a slightly higher-priced home than to have never flipped at all.
Dealing with wholesale property could get addictive and several flippers make it their main pursuit to not only seek out the next suitable property, but to do so at a much cheaper price and quicker than the previous deal. Ensure that there are no housing regulations that you have overlooked in the process of flipping a property in a specified amount of time and do not extend yourself as well.
If you happen to be a small scale investor, a single wholesale property deal at a go should be enough.
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