The House Flipping Answer Book: Practical Answers to More Than 125 Questions on How to Find, Fix, and Sell Houses for Profit

242 Pages·2008·1 MB·English

by  Denise L. Evans

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Sphinx Publishing Evans
and insights. ®
An Imprint of Sourcebooks, Inc.®
Naperville, Illinois
www.SphinxLegal.com
DENISE L. EVANS, AATTTTOORRNNEEYY AATT LLAAWW
Susan Ashley, PhD
The House Flipping Answer Book 7117.qxd 12/10/07 6:55 PM Page i
H
OUSE
THE
F
LIPPING
ANSWERBOOK
Practical Answers to More Than 125 Questions on How to Find, Fix,
and Sell Houses for Profit
D L. E ,
ENISE VANS
ATTORNEYATLAW
S P
PHINX® UBLISHING
ANIMPRINTOFSOURCEBOOKS, INC.®
NAPERVILLE, ILLINOIS
www.SphinxLegal.com
The House Flipping Answer Book 7117.qxd 12/11/07 8:42 AM Page ii
Copyright © 2008 by Denise L.Evans
Cover and internal design © 2008 by Sourcebooks,Inc.®
All rights reserved.No part of this book may be reproduced in any form or by any elec-
tronic or mechanical means including information storage and retrieval systems—except
in the case of brief quotations embodied in critical articles or reviews—without permis-
sion in writing from its publisher,Sourcebooks,Inc.®Purchasers of the book are granted
a license to use the forms contained herein for their own personal use.No claim of copy-
right is made in any government form reproduced herein.Sourcebooks and the colophone
are registered trademarks of Sourcebooks,Inc.®
First Edition,2008
Published by:Sphinx®Publishing,An Imprint of Sourcebooks,Inc.®
Naperville Office
P.O.Box 4410
Naperville,Illinois 60567-4410
630-961-3900
Fax:[phone]
www.sourcebooks.com
www.SphinxLegal.com
This publication is designed to provide accurate and authoritative information in regard
to the subject matter covered.It is sold with the understanding that the publisher is not
engaged in rendering legal,accounting,or other professional service.If legal advice or
other expert assistance is required, the services of a competent professional person
should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations
This product is not a substitute for legal advice.
Disclaimer required by Texas statutes
Library of Congress Cataloging-in-Publication Data
Evans,Denise L.
The house flipping answer book :practical answers to the top 125 questions on how to
find,fix,and sell houses for profit / by Denise L.Evans.-- 1st ed.
p.cm.
Includes bibliographical references and index.
ISBN 978-1-57248-76402 (pbk. : alk. paper) 1. Real estate investment. 2. House
buying.3. House selling.4. Real estate business. I.Title.II.Title:Sell houses for profit.
HD1382.5.E968 2008
332.63'240973--dc22
2007048788
Printed and bound in the United States of America.
CH — 10 9 8 7 6 5 4 3 2 1
The House Flipping Answer Book 7117.qxd 12/10/07 6:58 PM Page iii
Contents
Chapter 1:Introduction to Flipping Houses . . . . . . . . . . . . . . . . . . .1
Chapter 2:Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Chapter 3:Finding and Buying a House to Flip . . . . . . . . . . . . . . .51
Chapter 4:Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Chapter 5:Fixing Up a House . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Chapter 6:Particular Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Chapter 7:Selling Your House . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
Chapter 8:Plan B—What Happens if Things
Do Not Work Out Just Right . . . . . . . . . . . . . . . . . . .137
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175
Appendix A:Sample Loan Request . . . . . . . . . . . . . . . . . . . . . . . .189
Appendix B:Sample House Flipping Business Plan . . . . . . . . . . .191
Appendix C:Checklist of Construction,Rehab,and Renovation
Expense Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .195
Appendix D:Sources of Information about Potential Flip
Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .203
Appendix E:Real Estate Information by State . . . . . . . . . . . . . . .207
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .229
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .235
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The House Flipping Answer Book 7117.qxd 12/10/07 6:55 PM Page 1
II
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Chapter 1
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OOUUSSEESS
■ What is flipping?
■ Someone told me flipping is now illegal. Is that true?
■ What kind of person will be successful at flipping?
■ Is there more than one type of flip?
■ Is it possible to flip even when the market is depressed?
■ Can I flip houses like people do on the television shows?
■ Can I flip my own house?
■ Is there a flip for people who are afraid of power tools?
■ Can I flip rental houses?
■ Is it easy to flip vacant rental houses?
■ How can I flip with no cash, no credit, and no power tools?
■ I do not like fixing things up. Is there another kind of flip I can do?
■ How does the option flip work?
■ I read about people getting rich flipping condos. How does that work?
■ Can I buy foreclosures as a type of flip?
■ Is it possible to just find bargains, do nothing, and flip for a profit?
■ What is the parcel flip?
■ Can I make money finding flipping opportunities for other people?
■ What are the risks associated with flipping?
■ How do I get started in flipping?
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2 The House Flipping Answer Book
What is flipping?
In real estate,flipping consists of gaining control of real estate for
a short period of time with the intention of selling it to someone
else at a profit.While this definition may seem fairly vague, that
is because there are many different ways to flip property. You
have probably noticed that this definition does not say, “buying
and owning real estate for a short period of time…” You can
successfully flip houses all day long and never take title to real
estate,go through a closing,borrow money,have a silent partner,
and never risk any of your own money. (See Chapter 4 on
options for more information on this method of flipping.)
Someone told me flipping is now illegal. Is that
true?
No, it is not true. You can find articles and blogs all over the
Internet that say the same thing. It is just a case of people being
sloppy about how they describe a problem.
The Federal Housing Administration (FHA) insures a lot of
home mortgage loans. This allows the loans to be sold on the
secondary market, which gives the lender the money it needs to
make more loans. The FHA was concerned about widespread
fraudulent practices in which partners would flip properties to
each other, over and over, artificially inflating the price each
time. No real money changed hands until the very end, when
some lender got stuck with a $500,000 loan on a $150,000
house, and the FHA had to pay off on the insurance.
To put the brakes on that type of activity, the FHA issued
rules saying it would not insure any home loan for a property
that had been purchased and then resold within a ninety-day
period.Also, if the property had been bought and resold within
a six-month period, and the price doubled, FHA would require
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Introduction to Flipping Houses 3
two appraisals before it would insure the loan. This makes it
more difficult even for legitimate real estate investors to flip
properties in some circumstances.There is nothing illegal about
flipping, though.
What kind of person will be successful at
flipping?
Anybody can be successful at flipping property because there
are so many different ways to do it.You just need to match your
personality, strengths, and limitations to the right style. The
questions answered as follows will help you choose the strategy
that is right for you. The ideal flipper has plenty of the
following:
• cash;
• credit;
• time;
• discipline;
• knowledge;
• contacts;
• assistance; and,
• organizational skills.
Even if you give yourself an F on every single item on this list,
you can still successfully flip property! Read the brief descrip-
tions of flip strategies given in the next answer to find out which
one works best for you.
Is there more than one type of flip?
There are many ways to flip property. Popular television shows
spotlight fixer-uppers—diamonds in the rough needing only
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4 The House Flipping Answer Book
paint, carpet, counters, cabinet doors, appliances, landscaping,
and the moving of a few walls. While it is true that the single-
project, big-payoff flip falls into this category, this type of flip
has the most risk and is the least realistic option for most people.
On the other hand, it is really hard to make an interesting one-
hour television show out of people making money simply by
cleaning up dirty houses and selling them.
Here are some of the more popular flipping strategies. Some
require no cash and no credit. Some have little risk, except the
loss of a very small amount of money and your time.
1. The television flip. Buy a house, fix it up to increase its value
by a lot, and sell it.
2. The homeowner flip. Buy a house as your personal residence,
fix it up to increase its value, and sell it after two years.
Singles can make up to a $250,000 profit and married
couples can make up to a $500,000 profit,and pay no taxes
on this profit at all under current tax law.
3. The housekeeper flip. Buy a house, clean it up to increase its
value a little bit, and sell it.
4. The market rent flip. Buy a rental house with rents that are
significantly below market rates, raise the rent, and sell it.
5. The vacancy rate. Buy a vacant rental house, put a tenant in
place, and sell it.
6. The tenant flip. Rent a house on a lease with a purchase
option, clean it up and perform minor repairs to increase
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Introduction to Flipping Houses 5
value moderately, and then sell your option (this flip tech-
nique requires little cash and no credit).
7. The scrape flip. Buy property with an ugly, barely usable
building, bulldoze the building, and level the lot.Then, sell
the vacant lot.
8. The option flip. Buy an option on a piece of property—you pay
a small amount to hold the right to buy property but not the
obligation to buy it—and then sell your option. (There is
more detailed information on this type of flip in Chapter 4 on
options.)
9. The reservation flip. Sign contracts to buy property in a
booming market and then hope you can sell your contract
to someone else, at a profit, before you have to be at the
closing table with your purchase money.(It is called a reser-
vation flip because this is usually done with reservations for
condos under construction.)
10. The foreclosure owner flip. Buy property at below-market
prices from sellers in economic difficulty and then
resell. I include in this category reluctant owners, like
banks that have already foreclosed on property. While a
bank does not need the money to pay the electric bill, it
is still in economic distress relative to the property
because it has economic pressures to sell the property as
quickly as possible to cut its losses.
11. The under-market flip. Buy or option property from owners