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Beware The Biggest House Flipping Danger
Perfecting your house flipping business model
I’ve found through all the house flips I’ve done that the biggest danger is going in with a flipping business model that is destined to fail. Just know that when you are learning how to flip a house, you may execute a business plan poorly, but if it’s a good model, you still have a chance of succeeding financially, and pulling out a profit. It’s when you have a poor house flipping business plan, even when executed well, that can’t possibly achieve success.
From the outset, you’ll need to create a pro forma budget for your real estate investing project. This is the easy part. Acquisition costs, tentative rehab costs, and carrying costs until you sell it need to tallied up. Be sure to be conservative in all areas, and don’t forget to add 10% as a overage factor when investing in real estate. Then, figure on a realistic market value for the property once it’s all fixed up to determine your net income projection.
Make sure you use a local contractor to obtain accurate quotes on the work you need to have done for your renovations. Also, once you have a very good idea of the total work to be done, write it up! You can then bid out the work to several contractors (or, to disparate tradespeople responsible for their own individual parts of the whole rehab). And you’ll at least be comparing quotes with exactly the same work to be done.
Buying and selling at the right time of year
House flippers know that seasonality is extremely important in any flipping business model. Look to acquire properties in the late Fall and dead of Winter. You’ll find sellers tend to drop their prices right after Thanksgiving and Christmas…Likewise, try to have your renovations completed by the Spring to take advantage of the best time of year for any seller to place a house on the market. This is because most homebuyers come out of the woodwork in Spring, having stayed on the buying sidelines during the middle of Winter.
Knowing your local marketplace
This is the largest component to your house flipping business model. With research done online (for example, web sites such as Realty Trac, Zillow – http://www.zillow.com/ – or Trulia supply excellent data for your area) you should be well acquainted with the average sales price of like properties. In addition, you should know off the top of your head how many houses for sale there are in your town this month, how many there were last year, and what the overall change was. Likewise, you need to be very familiar with the most important statistic of all to a house flipper: the average number of days houses stay on the market in your area.
Any experienced real estate investor will tell you that the greater the average number of days average that a house remains on the market in your area, the less of a proper chance for your flipping business model to succeed. House flipping requires as short a time as possible between your acquisition of the property to the date you actually have it sold. In my business model, I won’t even consider purchasing an investment property to flip if the average number of days on the market for house sales in my area runs over one year. I would prefer six months or under. And I would take a very long look at my net income projection numbers on any given project for each month over six as an average time on the market in a given area.
Always do your research before you buy
So make sure you do your research into your geographic area as intensively as possible before looking to buy investment property for flipping. Keep a keen eye on the most important statistic: the average days on the market in your area. If it’s too high, consider purchasing in a more fertile area for flipping…Even if it means you’ll have to travel farther each day to oversee the renovations. Just don’t get stuck holding a flip property in a bad economic environment. Your carrying costs (taxes, insurance and mortgage) will eat up all your potential profits – and then some.
photos courtesy of tmgnorthwest.blogspot.com, cbsnews.com, metrosdrealty.com, foreclosurequestionsguru.com, foreclosuredatabank.com
Filed Under: Featured, Locating Property Tagged With: flip houses, flipping houses, house flipper, house flipping, how to flip a house, how to flip houses, investing in real estate, investment properties, investment property, investment property advice, investment property information, investment property locating, investment property searching, investment property strategies, investment property tips, investments, property investing, property investing advice, property investing information, property investing strategies, Property Investing Tips, property investor advice, property investor information, property investor strategies, property investor tips, real estate investing, real estate investing advice, real estate investing strategies, real estate investing tips, real estate investors
The Top Drivers of Rental Prices
Understanding the demand trend
Demand for rental units is the key component in current high rental prices for real estate investors. And this demand has been created by several major trends in the world of real estate investing of late. The national trend towards household consolidation, present and increasing since the financial crisis of 2008, means less homebuyers. Less homebuyers, due to their having to sit on the sidelines because of tight credit and a poor labor market, and uncertainty en masse about their job security, means more renters. More renters means higher rents in the marketplace for investment properties.
Infrastructure as key driver
Also feeding this demand on a more local level, is the growing importance of repairs to current infrastructure, as well as newly built infrastructure. That road crew you passed this morning on the highway – well, those repairs ultimately help keep tenants looking in your area. Without road repairs, for example, your geographic area becomes less attractive as a place to live in – or commutate to and from.
Likewise, any new subdivision, office building project or retail mall that’s about to be built in your area all help to create a greater demand by tenants for your particular neck of the woods. Certainly as each project is built, they also have concurrent infrastructure building going on to support the project. Roads, electric lines, cable, phone, internet, transportation lines and a whole host of other support infrastructure are required with new builds. When investing in real estate, always keep an eye out for potential new projects being approved by your local town boards. The growth afforded your community can only help to increase demand for rental units, and therefore, rent prices. With this new growth also comes ancillary services, as well as demand by renters. Schools, hospitals, shopping centers – they all grow outwards to meet demand as new expansion is created by disparate physical property projects.
Job growth is crucial
Ever notice the type of housing stock in non-vacation, rural areas? Slightly different than a typical suburban housing area, right? Typically, homes are flimsier, poorly constructed, or haphazardly constructed in these rural areas. And so, too, the rental demand and prices in rural communities is much smaller. The main reason? Jobs. In areas with less job creation and sustainability overall, relative to suburban or urban communities, you’ll certainly find much lower rental prices in their rental housing stock. Without a strong job base in any particular geographic area, rental housing will always remain weak. And this translates into very low rents for real estate investors.
Identifying the trends locally
So if you see that a new, major employer is coming to town soon – you can bet that demand for housing will jump. Infrastructure will most assuredly be upgraded, or added completely. And real estate investors should always be on the lookout, and become aware of these trends in your local community. Be certain to capitalize on them to maximize your dollars when buying rental property. Let these trends act as directional arrows for areas you should be focusing your real estate investing efforts.
photos courtesy of newsroom.aaa.com, flickr.com, usatoday.com, m8property.com, prospect.co.uk
Filed Under: Featured, Locating Property Tagged With: buying rental property, demand for rental units, infrastructure, infrastructure trends, investing in real estate, investment property, investment property advice, investment property ideas, investment property information, investment property strategies, investment property tips, investment property trends, property investing, property investing advice, property investing ideas, property investing information, property investing strategies, Property Investing Tips, property investing trends, property investment, property investment advice, property investment ideas, property investment information, property investment strategies, property investment tips, property investment trends, re4al estate investing trends, real estate investing, real estate investing advice, real estate investing buying, real estate investing ideas, real estate investing information, real estate investing strategies, real estate investing tips, real estate investment buying, real estate investor, real estate investor advice, real estate investor ideas, real estate investor information, real estate investor strategies, real estate investor tips, real estate investors, real estate trends, rental units
The Lamentations Of The Landlord
The sad tale of the sociopathic landlord
In my role as a real estate broker, I am occasionally reminded of the bad reputation levied on most landlords by a tiny, select group of unscrupulous property investors. Within this category of horrendous landlords who act so horribly towards their tenants (see my article here entitled “A Tenant’s Nightmare,” May 1, 2013) , there lies a sub-category of human being marked by venality and greed. This sub-category goes way beyond just being “thrifty,” or “cutting corners” in order to increase or create a positive cash flow in their rental property. No, this particular type of landlord is much more dangerous. And they hurt all landlords terribly. This subspecies I call the sociopathic landlord.
As a real estate broker, I was recently representing a seller of property with a rental home on it. The tenant had been renting there for over a year. While the conditions were not what I would call squalid, there was still a great deal of needed repair work that should have been done to the house, but was neglected by the landlord/seller. In the process of negotiating a deal to sell the property, the buyer, after reaching an agreement in principle to purchase the house, had a house inspector perform their engineering inspection.
As part of the routine engineering inspection, since the water system was well water-based, a simple water sample was collected for testing at a local lab by the engineering inspector (and the sample was done quite properly too, since I was standing next to him as he took it). After several days, the testing lab sent in their report to the buyer on the water sample: the water, as it turns out, was not “potable.” It simply had too high a coliform bacteria content in it to be safe to drink.
Now, well water in a vacant house can usually fail water tests, since there is no movement in the well over some period of time, and bacteria can easily form this way. However, I have never encountered a water test failing in a home where people are actually running the water every day. So this was a first for me. I knew the lab that did the testing, and how rigorous their testing procedure can be. And I had seen the inspector do a proper water collection for the sample. So, I really don’t know why it would have failed. The main thing to me, was that the situation be corrected immediately, since the tenant and her family were being placed in some form of physical jeopardy by drinking non-potable water!
Confronting the landlord
And then I called the absentee landlord to inform her that the buyer’s water test failed. Her reaction: “Well…I think the tenant drinks bottled water. She’ll be fine. So, I’m not going to do anything.” Besides being an absolute deal-killer, the landlord was also exhibiting major sociopathic tendencies…that is, a sense of grandiosity about herself, along with a total lack of concern for the health and welfare of her tenants. Unbelievable. I had never seen such callousness on the part of a landlord before.
Enlisting the aid of others…
Over the course of the next couple of days, I was successful in getting her trusted handyman to read her the riot act, and he convinced her to finally remedy the water situation by having him “shock the system,” or add chlorine bleach to the well. But it was her overall lack of concern for the safety of her tenants that scared me silly. (I was prepared to report her to the local building department if she had not remedied the problem.) As of this writing, it is doubtful the sale of her property will go through (what a shock). She is as recalcitrant about the failed water test as she is with all the other inherent problems the buyer’s inspection found with her house.
This story highlights the adage about “one bad apple” truly spoiling the whole batch. Is it any wonder how landlords as a group of property investors, intent on running a successful business while providing a much-needed service for renters, nonetheless get saddled with a less-than-stellar reputation due to the sociopathic tendencies of a very, very select few in our field. It is so important that we try to police ourselves to help rid our industry of these reputation-killers.
How to clean up the bad apples
What can be done about the problem? Well, when you see a bad landlord, call them out. Make sure they see the error of their ways. Tell their tenants. Have their tenants complain to the landlord. Or report them. And if that doesn’t work, call their local building department to report them yourself. Clearly, our collective reputations as good, decent property investors are at stake. And sociopathic landlords will never “get it.” They’ll never be able to empathize, feel compassion or protect the safety of their tenants. Only when they’re ordered to do so will they ever budge.
photos courtesy of magnoliaforever.wordpress.com, sodahead.com, flatremovalslondon.co.uk, upad.co.uk, holidayapartments101.com, ohmyapt.apartmentratings.com
Filed Under: Rental Investments Tagged With: bad landlording, bad landlords, building condemnation, building departments, building inspectors, Business, Business and Economy, coliform, coliform bacteria, economy, engineering inspections, home inpectors, horrible landlording, horrible landlords, house inspectors, Investing, investments, landlording, landlords, non-potable water, potable water, property investing, property investing advice, property investing information, property investing strategies, Property Investing Tips, property investment advice, property investment information, property investment strategies, property investment tips, property invstments, Real estate, real estate investing, real estate investing advice, real estate investing tips, real estate investors, rel estate investing information, rela estate investing strategies, rental properties, rental property, rental property advice, rental property dos and don'ts, rental property information, rental property strategies, rental property tips, rentals, sociopath, sociopathic landlords, sociopatic, tenant protections, tenant rights, tenants, U.S. business, U.S. business and economy, water samples, water testes, well water, well water samples, well water tests