Investing in Orange County Real Estate? How You Find Homes Worth Flipping

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Investing in Orange County Real Estate? How You Find Homes Worth Flipping

In Today’s Distressed Orange County Real Estate Market, Flippers are Making Fortunes

Buy low and sell high – the straight line to lining your bank account with extra cash, right?  Well, it works in Real Estate as long as you know the costs and the timing.  Take a look at this Santa Ana house for sale and the bus load of cash investors swarming over the potential to flip it for a profit.

What better way to train nubie Orange County Real Estate investors than to load them onto a bus and go look at REO homes for sale in Orange County.  A Real Estate Field Trip.  A Science Lab for Wealth Creation.  A real eye opener, what ever you may call it.  What did they learn?  Here are a couple of the highlights.

What are the main things to consider when you want to make a quick buck flipping houses? 

The Rehab Project – Unless you’re Ty Pennington, starting from the ground up is probably not in the cards.  Or the budget.  How extreme a make over are you facing?  Paint and carpet?  Kitchen and bathrooms?  Plumbing and electrical?  Roof?  Landscape? Knocking down walls?

Functional Relevance vs Functional Obselence – A house either has 1. a desirable lay out, or 2. the potential to have a desirable lay out (one wall to take down, etc…), or 3. can’t be made open – or at least open up the kitchen to the family room.  The seasoned flipper will immediately pass on any potential property if the floor plan is not open – or easy to open up.  Period.

Consistency with the Neighborhood – A potential flipper wants what the rest of the neighborhood has.  A home with a large room addition, that is the only one of it’s kind on the block, is not a good target for a flip.  There are no comparable active or sold listing to support the higher price you are going to need to sell it for to make your profit.  Next.

Find a House That Works?  Flippers Know It’s All About the Math

Once you find a house that will work – they ugly duckling just waiting for you to make it into a swan – here’s how you figure out the money.  Which requires math.  If they had told you in High School that it takes math to become a millionaire, you might have paid better attention, right?  Well, it’s not too late.

Projected Resale Price – This is how much you think you’ll be able to sell the house once you’ve bought it, done all the repairs, upgrades, remodeling, and staging you plan to do.

Amount of Profit – How much do you want to make on the flip?  You need to build your profit in up front to see if the numbers will work.

Cost of Sales – How much will it cost you to sell?  Including title, escrow, transfer fees, and commissions. 

Cost of Rehab – What’s the total cost to get the house in good enough shape to resale at a profit?  Savvy flippers know the condition of recent sales in the same neighborhood – you never want to go too far with your improvements – only what the neighborhood has proven it will support.

Time to Rehab – How long will it take you to complete all the work to get the home ready to resale?  You have be good a accurately projecting this time frame in order to accurately calculate your carrying costs.

Carrying Costs – Total up the monthly cost of owning the home – including property taxes, HOA dues, and your cost of money.  Many flippers borrow other people’s money (OPM) to make real estate investments.  Usually, the interest rate is very high (compared to home loan interest rate for borrowers buying their own home to live in) and you want to pay the borrowed money back as quickly as possible – hopefully from the profit on your re-sale.

Highest Price You Can Pay – Set your upper limit for purchase price that will make the numbers work.  If you buy a house for more than your numbers support, you cut in to either your profit or your rehab budget – or worse of all, both.  Do the math and stick to your highest price.   Don’t get emotionally attached to any house.  This is a business.  Flippers know that.  They also know it takes about 25 offers to get one at the price you need to make the money your looking for.

Flipper Formula – Projected Resale Price minus Amount of Profit, minus Cost of Sales, minus Cost of Rehab, minus Carrying Costs equals Highest Price You Can Pay.  Simple as that.  See me after class if you have any questions.  I’m Leslie – just keeping it real in Orange County Real Estate.

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