It is becoming more and more apparent that knowing the ins and outs of house flipping allows the investor to increase his or her possibilities for making the most out of an investment. A perfect example of what I am talking about is when an investor, who is familiar with house flipping and the costs associated with that process, purchases a multi-family property with the original intention to flip.
Not so fast! Before you decide to flip that property, I suggest that you review the benefits of possibly retaining the property. Before we examine what you must know to make an informed decision about keeping the property or flipping it, let’s consider some alternative methods of purchasing the property that may or may not be available to you if you are dealing with a single-family flip.
Generally, if you are flipping a single-family home, you can finance the purchase and rehab of that home by using your own funds, using private money or using hard money. You may be able to convince the owner to finance the property while it is being upgraded, but I would say that would be rare. Most houses that will be worth flipping for a good profit are houses where the seller is quite motivated and is looking to cash out more quickly. The original owner may not be willing to wait for you to fix the house and then sell it, which can take a number of months, and has an unknown end date for both you and the original seller.
Other problems can be created by the original owner waiting. If they have any idea of the profit you may make you can find yourself at odds with them. This could jeopardize the project and lead to the entire project becoming a bone of contention. Will there be profit sharing? If so, how will that be determined? If not profit sharing will the original purchase price need to be adjusted? What happens if the profit is somewhat different than what you anticipated, (either more or less) as a result of you running the project? Also, would the original owner be willing to deed the house to you before getting paid-in-full? Would they be willing to allow you to tear the house apart and rehab if they do not turn the deed over to you, or they are not sure that you will finish the job or pay them the remainder? Will you leave the house half done and walk away with less to lose then what they may lose? Owner financing for a single-family home that is being flipped is difficult to come by, to say the least.
Our next blog will move into the discussion of multi-family housing that needs rehab work. Obtaining a multi-family that needs work gives the investor a variety of options for both financing the property as well as deciding to flip, buy and hold or buy and hold for a period of time and then flip.