“You Make Money When You Buy”

If you’ve been around real estate for any period of time, you’ve probably heard that phrase thrown-around.

U.S. REO inventory trends through Q2 2013 (Courtesy: www.calculatedriskblog.com)
U.S. REO inventory trends through Q2 2013 (Courtesy: www.calculatedriskblog.com)

What it means, is that although you have to sell the property to actually receive the money physically from the flip, the price you pay for that property¬†determines how much you’re going to make.

In other words, the lower the price, the more equity you’re going to have.

Prices are on the rise all across the nation.

But you can get properties below market value in any market, regardless of how bad the economy is.

Here’s a small sample of the different sources you can tap-into to find property at below-market value:

Probate: People that were given a property as an inheritance that they don’t want to keep.

  • Absentee owners: People that own properties that they don’t live in (especially those that live far from the property).
  • Posting “bandit signs” in target areas.
  • Contacting landlords that might want to liquidate their inventory.
  • Foreclosures
  • Bulk REO Traders: People that buy foreclosures from banks in bulk that you can “cherry-pick” properties from.

 

You HAVE to Buy Low

Even if you’re going to be flipping in an area where there’s a lot of demand, you want to offer the best properties at the lowest prices.

In order for you to offer a house at a low price and still make the profits you want, you HAVE to buy extremely low.

The number of REO's in the U.S. has been dropping as of recent.
The number of REO’s in the U.S. has been dropping as of recent.

Drop in Number of Foreclosures

The number of foreclosures has dropped-off considerably recently.

This is because a lot of the sub-prime mortgages that were destined for foreclosure have already done so.

This is great news.

This means that the houses you flip are going to have better appraisal values, which means they’re going to be able to sell for more.

At one point, the city of Detroit had gotten so infested with REO’s that comparable sales reports from appraisers had more foreclosures on them than retail buys, which drug down property values tremendously.

I know I was kind of all over the place in this post, but I hope I helped shed some light on the state of the current real estate market.

 

Why are you interested in flipping properties, instead of all of the other options you have in the real estate realm? I’m curious. Drop me a comment, and let’s talk!