How to Flip a Short Sale
Short sale purchases involve a lender agreeing to sell a home for less than the balance of a mortgage currently owed on it. Many investors buy short sales properties for below-market prices and then quickly flip the properties for profit. If you are thinking of flipping a short sale, you must determine a budget beforehand to ensure you have sufficient funds to make any necessary repairs on the property that are needed before you can sell it at market price.
Other People Are Reading
Instructions
-
-
1
Contact local real estate agents and arrange to visit properties available through short-sales. If you are planning on renovating the house yourself, take detailed notes of necessary repairs and use the information to estimate the total cost of a flip. If you plan on hiring contractors to work on the house, take contractors with you to visit eligible properties and ask for an estimate of the work needed to flip the house. Decide whether to perform simple repairs or to make expensive upgrades that could raise the value of the home.
-
2
Buy a house through a short sale at well below market value. You have to pay capital gains tax on proceeds from a sale and real estate agents commission that normally amounts to 6 percent of the sale price. You can only profit from a short sale if you buy a home at a sufficiently low price to account for taxes, real estate agent fees, repairs and profit. Lenders must accept or decline short sale offers within 10 business days, but sales take another 45 days to complete. If you plan to finance the short sale, anti-flipping laws require you to hold onto it for at least 90 days before selling. Add the cost of property tax, insurance and a monthly mortgage payment into your budget when you bid on the home. Hire a certified home inspector to inspect the home and identify any underlying problems before you complete the purchase.
-
-
3
Begin necessary work on the home as soon as you take possession of it. Make sure you purchase materials and equipment within your budget. Do not spend more than you planned to because doing so reduces your profit margin. Make the house look presentable by mowing the lawn and cleaning it so that it has curb appeal. If you have a small budget, paint rooms to freshen it up, and repair minor damages.
-
4
Hire a real estate agent to list the renovated home. Price the home so that you cover all of your costs and have a good profit margin but do not over-price it because the longer it stays on the market the more it costs you in terms of maintenance, tax, insurance and mortgage costs. Accept a bid close to your asking price. If necessary, reduce the price to sell it quickly if no bids are immediately forthcoming.
-
1
Tips & Warnings
Get pre-qualified before attempting to finance a short-sale. Underwriting requirements are stricter for non-primary homes. You need to make a down payment of 20 percent or more for non-primary homes and pay a higher rate of interest than on a primary residence. Some lenders do not even offer loans on investment properties.
In some areas of the United States, it can take months or even years to sell a home, so do not buy a short sale if you cannot afford to maintain it for a long period of time. Consider renting it if you are unable to sell it quickly, but remember that renters have rights so you cannot evict them once they have signed a lease to rent it for a period of time.
