The Complete Guide to Flipping Properties

238 Pages·2003·2.24 MB·English

by  Steve Berges

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THE COMPLETE
GUIDE TO
FLIPPING
PROPERTIES
Steve Berges
John Wiley & Sons, Inc.
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Copyright ©2004 by Steve Berges. All rights reserved.
Published by John Wiley & Sons,Inc.,Hoboken,New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Berges,Steve,1959–
The complete guide to flipping properties / Steve Berges.
p. cm.
Includes index.
ISBN 0-471-46331-0 (pbk.)
1. Real estate business. I. Title.
HD1375.B429 2003
333.33—dc21
2003053493
Printed in the United States of America.
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C
ONTENTS
Acknowledgments ix
Chapter 1 Introduction 1
Background 2
Real Estate:A Sound Investment 4
Leverage:The OPM Principle 6
Economic Housing Outlook for the Next Decade 8
Chapter 2 Flipping Properties Defined 11
Three Primary Classes of Flippers 13
Scouts 13
Dealers 15
Retailers 17
Using Options To Flip Properties 19
Clearly Defined Objectives 20
Entry Strategy 22
Postentry Strategy 23
Exit Strategy 23
Chapter 3 The Value Play Strategy 25
Buy-and-Hold Strategy 26
The Value Play Strategy 29
The Value Play Selection Process 31
Property Location 33
Price Range 35
Physical Condition 35
Chapter 4 Ten Ways to Locate Properties 45
Real Estate Agents 45
Classified Advertising 49
Real Estate Publications 51
Local and National Web Sites 51
Real Estate Investment Clubs 54
Bank REOs 55
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■ Contents ■
Marketing 56
For Sale by Owners (FSBOs) 60
Vacant Properties 61
Foreclosures 62
Chapter 5 Valuation Methodologies 65
How to Know How Much Is Too Much 66
Valuation Methodologies 66
Replacement Cost Approach 66
Income Capitalization Approach 68
Sales Comparison Approach 70
Chapter 6 Financial Analysis 73
The Texas Two-Step 73
Multiply Your Efforts by 22 82
From Residential to Commercial 93
Chapter 7 Seven Steps of Successful Negotiations 111
The Psychology of Negotiating 111
Comprehensive Knowledge of Market 114
Degree of Seller’s Motivation 115
Backdoor Exits 119
Concessions 121
The Red Herring Technique 122
The Money-Talks Approach 123
Chapter 8 Financing and Closing Considerations 127
Conventional Mortgages 127
Mortgage Brokers 129
Local Banks 130
Lines of Credit 131
Owner Financing 133
Partnerships 135
Your Business Plan 136
What Every Borrower Should Know about Credit Scores 137
Underwriting Guidelines 140
The Closing Process 142
Chapter 9 Assemble a Winning Team of Professionals 149
Scouts and/or Dealers 150
Office Manager 151
Property Rehab Manager 152
Local Lender or Mortgage Broker 153
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■ Contents ■
Real Estate Attorney 153
Title Company 154
Real Estate Agents 155
Chapter 10 Three Keys to Maximizing Your Potential 157
Postentry Planning 157
Doing It Yourself versus Hiring It Out 159
Increasing Your Property’s Marketability 163
Preplanning 163
Heightening Visibility through the MLS 164
Offering a Marketable Product 166
Competitive Pricing 167
Offering Incentives 167
Summary 168
Chapter 11 The Three Principles of Power 169
The Principle of Vision 172
The Principle of Passion 178
The Principle of Autonomy 180
Appendix A Property Inspection Checklist 183
Appendix B Owner and Subcontractor Agreement 195
Appendix C Sample Real Estate Forms 201
Appendix D Sample Personal Financial Statement 219
Appendix E www.thevalueplay.com 223
Appendix F www.symphony-homes.com 225
Index 227
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A
CKNOWLEDGMENTS
Much of my life has been profoundly influenced by not one, but
two,loving fathers. The first father is the father of my spirit. He is
my Heavenly Father. It is with deep humility and eternal gratitude
that I acknowledge His hand in all that is good and virtuous in my
life. The second father is the father of my body. He is my earthly
father. It is with intense love and great respect that I acknowledge
his hand in all that is pure and decent in my life.
The principle of parenthood,and more particularly,fatherhood,
is an eternal principle. It is a pattern that was established in our
premortal existence, continues in our earthly existence, and shall
endure throughout our postmortal existence. It is with all the sin-
cerity of my heart that I pray I may continue the righteous and
loving pattern of fatherhood previously established to the beloved
children who have been entrusted into my care—Philip, Samuel,
and Benjamin.
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Chapter 1
Introduction
B
uying and selling real estate can be one of the most profitable
and lucrative investments activities an individual can participate
in. There are many approaches to investing in real estate, most of
which are centered around various time horizons. On one end of
the investment spectrum is the buy-and-hold strategy, where an
investor might purchase a property and hold it for many years. On
the other end is the buy-and-sell strategy,where an investor might
hold the property for only a few months, weeks, or even days. It
is the latter of these two strategies that I focus on in this book.
While readers of this book are likely to have broad and diverse
backgrounds, you do share one thing in common—that being
your interest in real estate and, in particular, your interest in flip-
ping properties. I try to be as thorough as possible since some of
you are likely to have little to no experience, while others of you
are seasoned professionals searching for that edge. This being the
case, those of you who have a great deal of experience may find
some of the material to be a bit basic. It is vital,however,that I lay
the proper foundation for those who are not as experienced. Many
of you have most likely purchased single-family houses at one
time or another and have at least a minimal degree of rental prop-
erty experience.
In Chapter 2,the concept of flipping properties,along with spe-
cific types of flipping,is more fully discussed. Then in Chapter 3
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