During real estate booms, some people talk about making a quick profit from flipping houses. Flipping is basically buying a property at a low price and quickly selling it for a profit. But even in a recession, house flipping can be a popular way of making money from real estate.
Buing Foreclosed Houses
Foreclosed homes are often snapped up by investors who think they can make a quick profit by selling them to buyers looking for downmarket bargains. For this strategy, make sure all your financing is lined up ahead of time so you can buy a foreclosed house before another investor gets to it.
Buying from Other Flippers
Many reckless flippers get left sitting on multiple mortgages during down times that they can't afford to hold onto long enough to make a profit when the market turns around. If you are comfortable with a long-term investment, buying from these former speculators at or just above the price they paid can eventually net you a profit. Just make sure you do the math ahead of time, taking into account the longer period of time you will likely have to pay taxes and upkeep on the property before the market ticks up enough to make a sale worth the wait.
Lease the Property
Investors who can lease their properties will be able to pay their expenses when the market is in a slump and still make a profit after it recovers. Before you buy a property you plan to hold for a long period of time, however, carefully calculate all your monthly expenses, including mortgage payments, taxes, repairs and utility costs. Check comparable rental properties in the area to make sure that the market rent will pay for everything, including a property management company if you want to free yourself of the double duties of being a landlord and a house flipper.
While flippers traditionally look to sell their properties at market value to the end owners, investors should also be prepared to protect their investment if necessary by off-loading a property through other means. This includes selling it at a wholesale price to another investor, doing minor or major rehab and renting it, or taking a renter with a rent-to-own agreement that will eventually net a profit. Know at least two different exit strategies before you buy the property.
Do Your Homework
Don't rely on data from websites or real estate agents looking to make a profit themselves. You are more likely to get good information if you vet the data yourself. Pull tax records from the past three months in the neighborhood and compare sale prices of properties with similar features--including number of bedrooms, number of baths and comparable upgrades. This information will help determine whether you can get your money back before you buy the house you plan to flip.