As a real estate investor, I engaged in flipping houses for a few years before the housing market fell into shambles. I invested in a variety of properties located in southern California, Nevada, Arizona and Washington. I lived the good life and enjoyed traveling to buy and sell investment properties for profit.
In 2009, my stint with flipping houses came to an abrupt halt. It seemed as if the entire country had taken a home buying hiatus. People were scared to buy houses for fear they would lose their job and in turn, lose their home to foreclosure. I was stuck with dozens of homes in various stages of repair and knew I had to do something fast to avoid becoming a foreclosure statistic myself.
I was fortunate enough to find tenants to rent properties intended for generating fast profits. Unfortunately, the majority of investors I knew weren’t so lucky. Before long, my phone started ringing off the hook as my investor friends called in desperation wanting to know my secret to success.
The truth of the matter is I purchased most of my investment properties with cash. That was the beautiful thing about flipping houses. I’d buy them for pennies on the dollar at foreclosure auctions or through property wholesalers. I had a great team of contractors who could turn an ugly, rundown home into a pristine residence within a matter of days. I had a solid network of buyers who were always on the lookout for great deals.
I don’t say this to brag, but to offer encouragement to investors who are struggling to stay afloat. The key to success with real estate investing is to create a solid plan with multiple alternatives. For example, when buying investment properties it is important to assess all the things that can go right and all the things that can wrong. Doing so allows you to be prepared no matter what happens within the market.
Not everyone can afford to buy houses with cash. When financing is required, it is crucial to keep loan installments in-line with your budget. If you can’t afford to pay installments if you don’t have tenants or buyers in place, give careful consideration to the ramifications that will occur.
When investment properties fall into foreclosure, borrowers’ credit is destroyed. It can take years to recover from the financial fallout. What’s worse is lenders often pursue borrowers for deficiency amounts between loan balances and sale prices. If property is repossessed and sold at auction for half of what is owed on the loan, chances are investors will be sued for the difference.
One option for turning profits with houses purchased for the intent of flipping is to offer owner will carry financing. This strategy involves acting as the mortgage financier for all or part of the purchase price.
Owner will carry is a good way to obtain full price for the property by selling it to buyers with bad credit or those who cannot afford large down payments. One of the biggest challenges investors face today is finding buyers willing to pay full price. This stems from the abundance of discount-priced foreclosure and bank owned homes listed for sale.
By engaging in creative financing, investors can sell properties at full price. Buyers who do not qualify for conventional mortgage loans are eager to pay market value in exchange for the opportunity to buy a house.
Another option is to offer lease purchase option agreements. When lease options are used, buyers reside in the home as tenants for 1 to 3 years. A portion of monthly rent is contributed toward the purchase price. Once buyers improve their credit, they obtain a bank loan to purchase the house. This is a good way to retain long term tenants while generating positive cash flow until the property is sold.
To stay afloat, investors need to become educated about creative financing options. Over 1 million homeowners lost their property to foreclosure in 2010 and chances are high that another million will fall victim to foreclosure in 2011. These people need a place to live and most would prefer to own a home vs. being tenants.
Although house flipping is not as prevalent today as it was a few years ago, with planning and patience investors can weather the storm by offering investment properties for sale through creative financing. Once the storm subsides, chances are good that flipping houses will once again be a preferred investment strategy.
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