Common Risks Faced by Property “Flippers”

December 25th, 2009

The first thing that should be noted is that flipping houses is a great way to bring home a rather large profit in a relatively short amount of time when doing so in a seller’s market so to speak. The problem is that we currently seem to be experiencing what is known as a buyer’s market from one end of the United States to another. Foreclosures are at an all time high, which means that the market has suddenly been saturated with properties for sale.

While this is excellent news (believe it or not) when it comes to getting your hands on a property at a lower price, it also makes a difficult time of convincing buyers to pay top dollar when there are better bargains down the road. This of course is one of the primary risks involved in the real estate investment venture that is known as flipping properties. The massive profits that most investors seek cannot be accomplished if the property cannot be purchased, rehabbed, and sold quickly.

Unfortunately, at the moment, very few properties in any city are selling too terribly quickly. The worst case scenario in a situation like this is that you are forced to either absorb the loss (which can in extreme cases result in serious financial hardship or bankruptcy) or rent the property out (which will in most cases negate all the efforts that were made to rehab the property. An inability to sell the property that is being flipped is probably the worst fear of every property investor who engages in this sort of investment. In these cases it is often better to drop the price and take a loss than hold out for a better price risking further losses in the future.

These are not the only risks associated with flipping properties unfortunately. Another risk would be the risk of seriously underestimating the amount of money that will be required in order to do the necessary work. This is something that many first time investors find is a fairly common occurrence. Most people have unrealistic expectations of exactly how far their dollars will go when it comes to investing in the materials and labor needed to properly rehab a property. Even minor cosmetic repairs throughout a house can easily run into several thousands of dollars in order to repair. The flip side is that once these repairs are made the potential profits run into several tens of thousands of dollars.

Another risk that isn’t often considered is the risk of overestimating abilities. This is one risk that costs not only precious time but valuable money as well. Not only is material wasted in the process of discovering you aren’t exactly skilled in any particular tasks but also there are further expenses (often unplanned) involved in hiring the professional to repair the damage and replace the material that was wasted. When in doubt, it is almost always best to hire a professional if at all possible. This also leads to missing deadlines, going seriously off schedule, and adding yet another mortgage payment (if not more than one) to the overall price of the project.

The final risk is often something that simply cannot be seen or anticipated. This was experienced in the days immediately following 9-11 and should not be forgotten. The unforeseen happens every day. Markets crash; local economies can be devastated by the announcement of a major employer that it is going out of business (thinks of the collapse of companies such as Enron and World Comm and what they did to local economies). In these instances, the market will take quite a while to recover from the shock to its system and ‘flippers’ among other investors are often left feeling just as lost and devastated as those that were victimized by these companies-both through no fault of their own.

Stuff happens and those things that we have absolutely no control over are almost always the things that affect us most profoundly. The same holds true when it comes to property investment. The state of the economy, the housing market in an area, and sudden announcements that affect either can often have the most profound impact on those who are investing in property in those areas whether for better or for worse. The trick is in deciding which risks are acceptable.

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Find a Good Real Estate Investment Property

December 25th, 2004

There are many ways in which you can find a great property for your real estate investment. The problem lies in the fact that many would be investors aren’t exactly certain what specific types of investment they wish to make. Unfortunately, the type of investing will greatly affect the type of property that will best suit your real estate needs. This article focuses on finding a great property for the purpose of flipping or rehabbing a property.

Seek Bargains

This is absolutely a necessary step when it comes to finding properties with excellent potential as flipped properties. Bargains are often sold at bargain prices for a reason. The good news is that many of these reasons are purely cosmetic and quite simple to fix. Finding a realtor that is willing to work with you for lower prices, bargain properties offer an excellent place to begin. If he or she is a knowledgeable professional you should have access to properties that would have been unavailable to you had you continued the search without the assistance of a professional.

Another great place to find bargains of this nature is to search through foreclosures, auctions, and homes that are preparing to enter into foreclosure. While not always the case, there are many in these situations that are willing to be a bit more flexible with the price. Never offer full asking price first. Start low and negotiate up. This may lose some properties but in the end it will be a much more profitable venture if you can get the properties you want for a smaller investment.

Know the Neighborhood

Before placing a bid on a potential property for flipping you need to learn as much about the neighborhood as possible. You do not want to place a family home in the middle of a retirement neighborhood, nor do you want to place a potential bachelor pad in that type of area. You also want to avoid areas that are entering a state of decline, as the rehab efforts are unlikely to achieve the profits you are hoping to receive. Instead, look for bargains in areas that are approaching some sort of renewal or have very low crime and excellent growth potential.

If you are rehabbing a home that is meant to appeal to families make sure the neighborhood is safe, has a relatively low crime rate, access to good schools, and entertainment opportunities that may appeal to families. These things will affect the price you are likely to be able to expect once the rehab efforts have been completed as well as the type of renovations you will need to perform on the property. Buying a property in an area that you know nothing about is like buying a property without an inspection-which brings me to my next point.

Get a Thorough Inspection

This is one of the most important steps in the process of selecting the perfect property for your real estate investment needs. A qualified inspection will prepare you for any problems that may arise during the course of your work on the home. These are things that will affect the amount of money you should offer on the home, the amount of money you will need to invest in repairs, and the amount of money you can expect once all is said and done.

Failing to have a complete and proper inspection can lead to disaster when the renovations begin costing extra money and time as efforts are undone in order to get to the root of the problems as you go. There are very few things that can save you the time or money that having a decent inspection can manage to save. Inspections can also make you aware of any structural problems, code problems, and other problems that may mean the difference between this property offering a possible profit or a probable loss. It is much better to be armed with this knowledge before ever making an offer on the property in question.

Realize That You do not Need to Buy the First Property You See

This is an important thing to remember. If the first property doesn’t speak to you, move on until you find one that does. This process is part science and part inspiration. If you are uninspired by a property it is unlikely that this property will suddenly take on a life of its own in order to suit your real estate investment needs. Keep searching until you find the property that meets all of your needs in order to find the perfect property for your first or your fiftieth flip.

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Caring For a Rental Property

December 25th, 2002

Those who live in a rental property may have questions regarding how they should care for their domicile. While treating the property with respect and not intentionally doing damage to the property should be understood there are other gray areas where renters may not be sure what their rights and responsibilities are in the rental situation. In most of these cases, these questions can be resolved by carefully reviewing the rental agreement. This can provide the renter a great deal of insight regarding which items will be corrected by the leasing agent and which items are the responsibilities of the renter.

Treat the Property Like it Is Your Home

The heading to this subsection is certainly appropriate in theory but in reality it may not be true. The theory behind treating a rental property like it is your home is that you should treat the rental property in the same way you would treat your own home. This means the renter should not intentionally damage or otherwise neglect the rental property. It also implies that the renter should care for the rental property by making necessary repairs as they arise.

However, the reality of this heading is not true because renters are often not free to treat a rental property like it was their home. Homeowners are free to make modifications at any time to their property. Renters do not have this option and are only allowed to make modifications which are permitted by the contract agreement. These permissible modifications are usually rather insignificant in nature.

Seek Assistance from the Property Manager When Warranted

Renters should also seek assistance from the property manager when there are repairs which fall under the jurisdiction of the property owner or manager. Such repairs might include items such as unclogging drains, fixing appliances and making modifications to the residence such as installing lighting features. Although the renter may be capable of performing some or all of these actions, the rental agreement may specify these items are the responsibility of the property owner or manager. Renters who attempt to fix these items may be held liable for damages which occur during these attempts.

Similarly, the rental agreement may imply, by omission, that certain items are the responsibility of the renter. These may be small items such as changing light bulbs or similar items. In these cases the renter is free to make the adjustments. However, in other situations where the rental agreement specifies the apartment manager will handle certain complaints, these complaints should be called to the attention of management.

When the Property Manager Isn’t Doing His Job

Renters may encounter a problem where the apartment manager is not being responsive to his complaints and is not addressing situations which are brought to his attention. When this occurs the renter may have no choice but to bring this to the attention of the property manager’s supervisor. When a property manager is required to make certain repairs and address certain issues and fails to do so, he is creating a hazard for the members of the community. This is why the renter should not allow these transgressions to occur. The renter should also not be fearful of retaliation by the property manager because the contract will likely specify the renter’s rights to complain to a higher authority about the quality of service they are receiving.

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Property Investment for Retirement

December 25th, 2001

While many fortunes have been made and lost in the real estate business, many people overlook the value of real estate investing when it comes to planning for retirement. There are many great ways that you can let real estate build a nice little nest egg for your retirement and the sooner you begin the process the better.

While there are all kinds of stocks and mutual funds that confuse even the most intelligent among us, real estate is a pretty straightforward business to get into. The problem is that many people feel it is too risky. The truth is that there are many different types of real estate investing that all carry different risk to the buyer. One thing is for sure and that is that with proper care and attention properties tend to gain value over time rather than lose value. If you purchase properties today and properly maintain them, you can not only reap years of rental income while paying the mortgage on these properties but you can also find your retirement home and pay today’s prices for it rather than the prices of tomorrow.

When it comes to real estate it is always good to arm yourself with knowledge before taking any steps and you should carefully discuss all plans for your financial future with your trusted financial planner or advisor. His or her job is to give you guidance when making plans and purchases that will affect your financial stability and security. They can also help you with the matters of taxation, cost analysis, estimated inflation, and the average rise in property value for an area.

As I mentioned before there are always risks when it comes to any sort of investing. The same holds true for real estate investing. Things can go wrong. On occasion you will find lemon properties, for this reason you need to have a complete and thorough inspection performed before you purchase the property. You should also make sure that you are aware of your state and local laws as they apply to landlords. For this reason it is a good idea to consult with an attorney that specializes in this type of financial investing in addition to your financial advisor.

Rental properties aren’t the only way to build a property investment portfolio. There are all kinds of property investment opportunities for those that are willing to take the risk. When it comes to property investing, the greater risks often net the greater potential rewards. The thing you must remember is that you are gambling with your financial future. I tend to stick with rental properties as they are a fairly safe bet and actually pay for themselves over the years while building a nice nest egg for my future.

There is the eternally fascinating investment opportunity that property flipping presents for one. When flipping a property you purchase a property below market value-preferably one that requires minor cosmetic repairs. Make the repairs. Then sell the house for a substantial profit. This is a risky venture for those who are novices to the field and many would be investors have lost a great deal of money doing this. Successful investors however can net significant profits in a very short amount of time if they have the knowledge and skills to do the work themselves and time things perfectly.

There are even more property investing opportunities that provide even greater risk, as they are highly speculative known as pre-construction investing. This is the type of investing that creates millionaires. On the flip side it has sent many into bankruptcy along the way as well so tread very carefully before engaging in this sort of real estate investing and take great care never to invest more than you can afford to lose.

As you can see there are ample opportunities in real estate to create an outstanding financial retirement plan for you and your family. The only decision you need to make is whether or not this type of investing is a good fit for your comfort zone.

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Maintenance on a Rental Property

December 25th, 2000

Maintenance on a rental property can be a confusing issue. Renters may mistakenly assume all maintenance is the responsibility of the leasing agent and maintenance staff but this is usually not true. In many cases the leasing agent and maintenance staff are responsible for maintaining the common areas and performing major repairs on the apartments but the renters do typically have some responsibilities. These responsibilities are often defined in the rental agreement and the renter should familiarize himself with this document to verify his rights if a dispute arises.

Renter Responsibilities

Typically renters have the responsibility of maintaining their apartment and the surrounding area. This may include the interior of the apartment as well as deck or patio space. However, maintenance of these areas applies to generally cleanliness only and not issues such as painting or repairs to the exterior or the interior of the apartment structure or the appliances within the apartment.

Additionally, renters are responsible for small repairs in their home. This may include plunging a clogged toilet or changing a light bulb. However, if there are any duties a renter feels uncomfortable performing such as changing a light bulb in a high location, the renter should contact the maintenance staff for assistance.

Renters also have a responsibility to show common courtesy to other renters by not intentionally damaging or otherwise marring public areas. This includes vandalism, littering and even failure to pick up after dogs. Renters who fail to follow these rules of common courtesy may be subject to fines or other penalties according to the rental agreement.

Leasing Agent Responsibilities

The leasing agent and maintenance staff are generally held responsible for major items such as repairs to the exterior of the building, fixing appliances which are malfunctioning and dealing with plumbing issues such as leaky pipes. Additionally, the maintenance staff is responsible for intervening if the renter is having trouble with public utilities. Problem such as no hot water or heat to the apartment should be addressed by the maintenance staff in conjunction with the public utilities entity.

The leasing agent and maintenance staff is also responsible for maintaining the common areas. This may include keeping grassy areas manicured and other common areas looking clean and attractive.

When the Leasing Agent is Not Taking Responsibility

As previously discussed, the leasing agent has certain responsibilities to perform tasks and address concerns and complaints by the renters. However, when the leasing agent is not fulfilling these responsibilities it could create a harmful living environment for the renter. For example hot water is required to adequately clean dishes. This is why there should always be hot water to the apartment. Additionally, in severely cold weather the inability to heat the apartment due to faulty utilities or windows which are not properly sealed can create a hazardous condition for the renter.

Both of the examples mentioned above are situations in which the renter may put in a hazardous condition by the leasing agent’s negligence. In these situations the renter should contact the Department of Housing to determine the proper cause of action to take in this situation.

In some cases the renter may be informed the alleged transgression by the leasing agent is not actually his responsibility. However, in other situations the renter may be informed that the actions of the leasing agent are a serious violation of the rental agreement. In either case, the representative can provide information on how to proceed to achieve the desired results.

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Caring For a Rental Property

October 19th, 1998

Those who live in a rental property may have questions regarding how they should care for their domicile. While treating the property with respect and not intentionally doing damage to the property should be understood there are other gray areas where renters may not be sure what their rights and responsibilities are in the rental situation. In most of these cases, these questions can be resolved by carefully reviewing the rental agreement. This can provide the renter a great deal of insight regarding which items will be corrected by the leasing agent and which items are the responsibilities of the renter.

Treat the Property Like it Is Your Home

The heading to this subsection is certainly appropriate in theory but in reality it may not be true. The theory behind treating a rental property like it is your home is that you should treat the rental property in the same way you would treat your own home. This means the renter should not intentionally damage or otherwise neglect the rental property. It also implies that the renter should care for the rental property by making necessary repairs as they arise.

However, the reality of this heading is not true because renters are often not free to treat a rental property like it was their home. Homeowners are free to make modifications at any time to their property. Renters do not have this option and are only allowed to make modifications which are permitted by the contract agreement. These permissible modifications are usually rather insignificant in nature.

Seek Assistance from the Property Manager When Warranted

Renters should also seek assistance from the property manager when there are repairs which fall under the jurisdiction of the property owner or manager. Such repairs might include items such as unclogging drains, fixing appliances and making modifications to the residence such as installing lighting features. Although the renter may be capable of performing some or all of these actions, the rental agreement may specify these items are the responsibility of the property owner or manager. Renters who attempt to fix these items may be held liable for damages which occur during these attempts.

Similarly, the rental agreement may imply, by omission, that certain items are the responsibility of the renter. These may be small items such as changing light bulbs or similar items. In these cases the renter is free to make the adjustments. However, in other situations where the rental agreement specifies the apartment manager will handle certain complaints, these complaints should be called to the attention of management.

When the Property Manager Isn’t Doing His Job

Renters may encounter a problem where the apartment manager is not being responsive to his complaints and is not addressing situations which are brought to his attention. When this occurs the renter may have no choice but to bring this to the attention of the property manager’s supervisor. When a property manager is required to make certain repairs and address certain issues and fails to do so, he is creating a hazard for the members of the community. This is why the renter should not allow these transgressions to occur. The renter should also not be fearful of retaliation by the property manager because the contract will likely specify the renter’s rights to complain to a higher authority about the quality of service they are receiving.

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