Here's an interesting article i just came across from RisMedia. House flipping was huge in the Sacramento area during the boom/bubble years of 2002-2006. Then things died down a bit when the bubble burst. Slowly, flippers started getting back into the game in 2010 and it has really picked up again in the Sacramento Area.
Lex Levinrad is getting phone calls. More than he can handle. His Deerfield Beach, Fla.-based Distressed Real Estate Institute is flooded with requests these days from regular people — teachers, plumbers, paint salesmen — who want to invest in South Florida real estate now that home prices are rising.
Many who attend his monthly seminars around the area are learning the art of “flipping” — buying properties at deep discount, fixing them up and reselling within a few months to traditional buyers.
Levinrad, 46, a South African native who says he’s bought and sold more than 500 homes, shows aspiring investors how to do the math and where to find the deals. He also counsels them to be careful, to avoid the mistakes that led to the housing crash. He said investors often pay too much for homes and underestimate the cost of repairs. “They become emotionally attached to the house, get greedy and stubborn and won’t sell unless they make a certain profit,” he says. “That’s how they get stuck.
Here are three golden rules of real estate investing:
—Don’t buy with the expectation that the home will shoot up in value. During the housing boom, too many flippers got burned by counting on fast price appreciation. When the market tanked, so did they.
“If you buy only hoping that prices are going up, it’s the same as going to (Las) Vegas,” Levinrad says.
Flippers must buy at enough of a discount that gives them instant equity in the home, Levinrad says. That allows them to turn around and sell without having to wait for prices to rise.
Without instant equity, it’s best to hold off — unless investors are willing to become a landlord, he says.
Levinrad and David Dweck, founder of the Boca Real Estate Investment Club in Coconut Creek, Fla., say flippers should buy a home for no more than 65 percent of the market value after repairs. If a house is worth $100,000 after it’s renovated, and it requires $10,000 in work, the maximum price an investor should pay is about $55,000.
Dweck’s advice: Don’t skimp on renovations and save the receipts to show appraisers. “The biggest challenge right now is appraisals,” Dweck says. “The more ammunition you have to give appraisers, the better. But there is absolutely no guarantee.”
Maher Hanna, a student of Levinrad’s seminars who started investing full-time this year, says flippers — particularly beginners — may have to be satisfied with modest profits.
—Do your own due diligence. Investors should know the true value of a house without relying solely on outside sources.
Too many novice investors take a real estate agent’s word, Levinrad says. Even appraisals may offer only a ballpark figure, he says. The best way to determine value: Travel to the neighborhood, attend open houses and see what similar-size homes are selling for.
Also find out how many other homes in the area are listed and for what prices. Flippers should price their renovated properties slightly below market value to attract interest. That will ensure they don’t have to keep the home any longer than necessary, Levinrad says.
—Know your exit strategy. If an investor is planning to buy, renovate and resell, stick to the plan.
Some investors change course and end up regretting it. They may realize they’ll make less money on the deal than originally expected, so they hold the home and rent it instead.
But then they discover they aren’t prepared to be landlords — from the hassles of dealing with problem tenants to the high cost of maintaining the homes.
“Something that was supposed to be a profitable and enjoyable experience turns into a nightmare,” Levinrad says. “If your profit is less than you anticipated, consider it a lesson learned and move on to another property.