Investing "flipping"

[Guest Lynn]

We want to start flipping houses that need minimal work. Maybe even targeting houses that are in pre-foreclosure. Paint, carpet, fixtures, etc. Houses with the right things wrong. In and out.

 

My question is. We need money to start doing this. We are thinking of selling our primary residence, taking the money we make from that and start flipping. Is there a way to do it without selling the house we live in now? Should we do a cash out refinance, home equity loan, etc????? Our house is on the market right now but I'm starting to think that maybe we should go about it another way.

[Doug Pretorius (ON) 9]

The answer is yes, in fact there's a way to do this without using any of your own money at all.

 

Step 1: Sign the house up on a 6 month lease purchase.

This eliminates your need for a mortgage or down payment or closing costs.

 

Step 2: Buy the materials and even the labor on credit.

 

Step 3: Double close or assign or whatever you have to do to get your money out, and pay off the credit line.

 

Step 4: Rinse and repeat.

[Guest Lynn]

When we agree on the 6 month lease purchase, is that when we agree on a purchase price. How does the selling process work. We don't technically own the house. What happens when we are finished fixing up and ready to sell?

[Doug Pretorius (ON) 9]

Yes to the first question. When your ready to sell you can do a double close, assign your option, have the buyer and seller sign a new contract and have the seller pay you a cancellation fee for your option, etc. There are a variety of ways to get paid.

[draegarfrog 0]

Doug, this would be a little too riskey for me. What if you make all the repairs and bring the house up to fair market value, 6 mos later you still can't find a buyer, now the homeowner has a nice house that he can sell. You lose everything you invested. If I found a piece of property to flip (land, building etc) I would just use a pure option to sell "as is" and then try and find a buyer/investor.

[Doug Pretorius (ON) 9]

I would rather flip a move-in condition home too. But the question was about doing light rehabs. Consider this:

 

Rehab with Option:

Worst case scenario. You can't find a buyer, you lose the the money you put in to fix it.

 

Rehab with Traditional Purchase:

Worst case scenario. You can't find a buyer, you make payments until you can't afford to anymore, you lose the house in foreclosure, you lose the money you put in to fix it, plus your down payment, plus your credit is ruined.

 

If you're doing a rehab which risk would you rather take?

[happyardy 0]

I would rather flip a move-in condition home too. But the question was about doing light rehabs. Consider this:

 

Rehab with Option:

Worst case scenario. You can't find a buyer, you lose the the money you put in to fix it.

 

Rehab with Traditional Purchase:

Worst case scenario. You can't find a buyer, you make payments until you can't afford to anymore, you lose the house in foreclosure, you lose the money you put in to fix it, plus your down payment, plus your credit is ruined.

 

If you're doing a rehab which risk would you rather take?

 

 

Here is William Bronchick's take on LOing Rehabs.

 

http://www.reidepot.com/articles/Bronchick/leaseopt1.html

 

Hope that helps !

- Ardy

[MichaelC 160]

Lease options and fixers are a great match, if you do them correctly. I've done a few and have always walked away with a profit that made it worth my while. That article that Ardy referenced is right on in my experience. And depending upon the specific deal and your local market, going in and making the repairs even before you take title can be a good deal for you. . .again, if you do things correctly.

[-Tony- 0]

Okay I have done a couple of these and am working on one now. Don't sell your house; that is your bank. Use a HELOC....what you are talking about shouldn't cost more then 3-5K anyway. Here is how I do it:

hold on I am gettin my docs out now.........where did they go.........here they are:

 

1. POA with an interest

2. Lease and option combined

3. Memo of option

4. Authorization to release info (Bank loan)

5. Authorization for insurance

 

I set the lease up for2-3 yrs (Justin Case taught me this)

 

3-5 are fluff for the owner really with the POA it isn't really needed

 

I did this with my own home than assumed the loan there are some pic's on the board if you look...now the wife is thinking about taking this one and selling ours

 

email me I can give you some Ideas

 

Tony

[Craig 0]

We want to start flipping houses that need minimal work. Maybe even targeting houses that are in pre-foreclosure. Paint, carpet, fixtures, etc. Houses with the right things wrong. In and out.

 

My question is. We need money to start doing this. We are thinking of selling our primary residence, taking the money we make from that and start flipping. Is there a way to do it without selling the house we live in now? Should we do a cash out refinance, home equity loan, etc????? Our house is on the market right now but I'm starting to think that maybe we should go about it another way.

 

Just sign a contract subject to. And wholesale the home as the assignment of cntract. It will have to be a good deal of course. Don't sell what you got. You need a place to live first.

[mpine 0]

Here is my strategy.

 

1. Sign up property under unused LLC name

2. Find an all cash Buyer

3. Sell LLC to Cash Buyer with clause that sale of LLC will satisfy all contracts being held

4. Take me out for a night of heavy drinking with your new found loot.

 

 

Mike

[Craig 0]

The answer is yes, in fact there's a way to do this without using any of your own money at all.

 

Step 1: Sign the house up on a 6 month lease purchase.

This eliminates your need for a mortgage or down payment or closing costs.

 

Step 2: Buy the materials and even the labor on credit.

 

Step 3: Double close or assign or whatever you have to do to get your money out, and pay off the credit line.

 

Step 4: Rinse and repeat.

 

Doug:

 

Can you write the materials off as a deduction because you don't own the property? If anyone has this answer I am interested.

 

Craig

[Craig 0]

I would rather flip a move-in condition home too. But the question was about doing light rehabs. Consider this:

 

If you're doing a rehab which risk would you rather take?

 

 

Here is William Bronchick's take on LOing Rehabs.

 

http://www.reidepot.com/articles/Bronchick/leaseopt1.html

 

Hope that helps !

- Ardy

 

Great article.

[Craig 0]

Here is my strategy.

 

1. Sign up property under unused LLC name

2. Find an all cash Buyer

3. Sell LLC to Cash Buyer with clause that sale of LLC will satisfy all contracts being held

4. Take me out for a night of heavy drinking with your new found loot.

 

 

Mike

 

Mike:

 

I am not seeing something. Why would you go to the expense of forming a LLC to do this deal?

 

The drinking sounds great. But what about the paper work involved with the LLC

[mpine 0]

Here is my strategy.

 

1. Sign up property under unused LLC name

2. Find an all cash Buyer

3. Sell LLC to Cash Buyer with clause that sale of LLC will satisfy all contracts being held

4. Take me out for a night of heavy drinking with your new found loot.

 

 

Mike

 

Mike:

 

I am not seeing something. Why would you go to the expense of forming a LLC to do this deal?

 

The drinking sounds great. But what about the paper work involved with the LLC

 

I pay my Lawyer $550, and its a done deal for me. It is an easy in and out and my CPA likes it. This does not work when banks are involved however, they consider it using a straw man entity. If i were to do this as a standard double close my costs would be exactly the same lawyer fees plus additional transfer fees and taxes for the transaction.

 

By doing this I file nothing with the town, i just do a standard P&S and and its done, I get paid. I like to do things that are easy in and out, Also I am not taxed as if I am selling real estate.

 

This is probably no more right or wrong then Dougs way of doing it, I just find it a cleaner exit strategy, I also find it easier for my investors to buy from me all cash without questioning a high Assignment Fee.

 

Mike