The 8 Rules of Flipping – Part 2

In The 8 Rules of Flipping in the New Economy – Part 1, I listed the first four incredibly important rules for successful flipping in today’s volatile real estate market…

In this article, I wanted to continue that list:

5. Location, Location, Location: While this has always been a key maxim in real estate investing, the difference between then and now is that today, you need properties that will get a lot of potential buyer traffic through them. This means buying in the front of subdivisions, buying on well-traveled (but not too busy) roads, and buying in areas near shopping and other amenities that draw crowds.

   Many buyers these days are finding houses because they drive past them and see signs; they may not have even been on the market previously to buy, but they stop into yours and they fall in love. If you buy in locations that will only get foot-traffic if an agent brings them in, you’ll get a lot fewer potential buyers through the house, and today, it’s all a numbers game. You need to get lots of buyers to at least look at your property, and just listing on the MLS and waiting for agents to bring potential buyers though isn’t going to accomplish that goal.

6. Staging: I’m a huge proponent of house staging. And I firmly believe that while staging may not get you a whole lot more money for your property in today’s market, it will certainly increase your likelihood of getting offers if your house is priced correctly. While buyers aren’t likely to increase their spending limit in this market (they don’t have to), they will most certainly be drawn to houses that they can imagine themselves living in.

   Staging accomplishes this by allowing your buyers to make an emotional connection with your property — by allowing them to associate it with a home, not just a house. A house without any furniture is just a faceless property…a nicely decorated home provides a feeling of warmth, comfort and security. And not only does staging create an emotional connection, but it allows those buyers who aren’t very imaginative (read: MOST BUYERS) to get a better feel for how the house will look once they move in. In fact, if a house is staged well, it will give your potential buyers ideas for how to make their next home (this one!) even better than their last.

7. Know The Rules: House flipping is a lot more complicated than it appears on TV. There are lots of rules, regulations and roadblocks that — if not heeded — will hinder your ability to make money in this business.

   For example, many rehabbers don’t realize that once they purchase a property, they have to wait a minimum of 90 days to turn around and sell that property to an FHA buyer (and these buyers make up a large percentage of the total buyers in this market). I can’t tell you how many people I’ve met who had a plan to buy a property, slap on some paint and carpet, and resell to a retail buyer in just a couple weeks, and then got caught by this FHA rule. But, instead of selling in a couple weeks, they had to hold onto the property for three months, increasing their holding costs (and tying up their cash) while they waited for the opportunity to sell to their FHA buyer. And in some cases, the buyer didn’t want to wait around (did I mention that buyers have lots of choices these days), and the deals fell through.

   To be successful, you must know the rules — this includes buying rules, selling rules, lending rules, construction/permit rules, etc.

8. Build A Strong Team: The difference between a successful real estate investor and an unsuccessful one is the team she surrounds herself with. A real estate investor is only as good as his CPA, attorney, real estate agent, inspectors, contractors, title company, etc. When it comes to pulling off all the other rules I listed, you need a strong team to be successful; if you don’t have that strong team, you can bet your competition does.

   A weak team will cost you time, money and headaches that you can’t afford. All it takes is for your agent to negotiate poorly, your attorney to miss a contract loophole, your inspector to miss a structural problem or your contractor to screw up to turn a profitable flip into a loser. A couple of those can quickly end an otherwise successful real estate career.