Investing in real estate using the Flipping methodology is a proven financial strategy for hundreds of years. Knowing the fundamentals is the main factor between financial success and financial disaster. To simply invest in real estate using “flipping” there is only one hard and necessary rule: “Know your exit strategy”.
A simple definition of a flipper is: someone who purchases property at substantially less than the current retail rate with the express intention of reselling it at a higher price. This is an unlicensed practice and requires an excellent understanding of rehab construction and a perceptive knowledge of neighborhood real estate markets.
Clearly, there’s a difference between flipping and speculating when it comes to single-family homes. It is true that many speculators are actually a subset of real estate pinball machines. However, a successful flipper, compared to a speculator, is always more conservative and has more granular economic analysis when it comes to potential real estate purchases.
For a flipper, there are only two exit plans: 1. Quickly transfer title to another investor (who may be a speculator), or 2. Rehab and sell the property at current market value. The second plan, rehab and sell, will create the most profit, but the first plan, reverse title, tends to work in a much shorter time frame and allows for multiple runs compared to the rehab timeline.
There are three unique types of pinball machines:
1. The “Bird Dog”: This is an information scout or gatherer who locates potential deals and then sells the information to another investor for a fee.
2. The “wholesaler”: Like the “bird dog,” this person locates the potential deal but then moves on to close or contract out that particular deal. This contract usually contains a time frame as to when the title to the property will legally change hands. This allows the wholesaler to sell the contract or assign the contract to another investor or individual interested in owning that property.
3. The “Retailer” – Typically, getting leads from the bird dog and the wholesaler, the retailer will first assess the project for rehab costs. The retailer will always put in the most money of the three, but is the one that will make the most profit. Also, the retailer’s project timeline is much longer, usually months, rather than days or weeks like the birddog or wholesaler.
Real estate investing usually begins with the sale of properties. The downside to “flip” is ending up with the property. This creates a situation where you later become the owner. This is only a bad situation if your investment payments to obtain the property cannot be covered (with profit) by the money earned from renting that property. You can quickly understand that if you are paying 5% to use the money you have invested in a potential investment (example: $350.00 per month) and you can now successfully rent that property (example: $700.00 per month), then you have, of In fact, he made a successful real estate investment.
The combination of falling real estate prices, banks releasing their single-family home assets, low interest rates, rising rental prices, and more displaced people looking to rent vs. own, creates a great opportunity for real estate investors. We are in an economic period where it is very easy to buy cash flow positive real estate investments. These opportunities are particularly strong in single-family homes rather than condominiums, as well as multi-family homes (prices going down with CAP rates going up). For the investor who understands the fundamentals, the market and has vision, now is the time to invest successfully in real estate.