Expert Tips for Profitable Foreclosure Flips

Flipping is big business. Nationally, investors flipped nearly 100,000 homes in the first six months of 2012, up 25 percent from the 80,000 flipped properties during the same time period in 2011, according to RealtyTrac.

Home flipping is on the rise in foreclosure-riddled states like Arizona, California, Florida and Nevada, with flippers making an average gross profit — not including carrying costs and rehab expenses — of nearly $30,000 per flip.

Here are some tips from flipping experts we spoke to help kick start a profitable flipping career:

Tip 1: Diversify
“Diversification is the key to success,” says Florida foreclosure flipper Lee Kearney, a Realtor at West Florida Wholesale Properties, who flips 40 to 50 foreclosures a month, averaging 10 to 20 percent profit on each deal. “I  wholesale foreclosure flips to investors. I ‘whole tale’ to homebuyers, meaning a small fix up with a little paint  and clean up. And I do all-out remodels that I sell retail to homebuyers. We look at this business like a pipeline. Nine out of 10 deals we expect to make money. It’s just a numbers game.”

Tip 2: Design to Sell
“Our target market is buyers who are looking for an  affordable house that offers good design,” said California architect and house flipper David Chun, who has flipped four properties in the last three years and has just purchased another one. “Good design is not very accessible. It’s out of reach for many buyers. So we make design affordable. And buyers are looking for design.”

Tip 3: Don’t Pay Too Much
“We don’t buy on the open market,” said Gina Osten, a Miami, Fla., Realtor with real estate investment firm Team Investments who has flipped 30 Phoenix properties in three years. “We buy  two to four deals a month. We only buy below $100,000. Then we do a light rehab  — just paint and carpet. No major repairs. Then we flip it in 30 days or less. As long as there’s cash in the market my model works.”

Tip 4: Prepare for a Plan B
Competition  is increasing in the Florida market, claims Kearney, the Florida serial flipper. So foreclosure flippers have to plan for an alternate exit strategy —  and even be prepared to rent short term until you find a buyer.

“If  we can’t flip a property, I’ll do a turn-key Section 8 rental,” said Kearney, referring to the government-sponsored rental program. “Right now, the Florida housing market is changing. Large hedge funds are coming in and buying up the distressed inventory. So investors need to plan for the worse.”

Tip 5: Consider Creative Flipping Strategies
“I’ve done hundreds of option deals,” said Florida flipper Marco Kozlowski, referring to optioning  properties for a quick flip. Kozlowski offers home sellers an option to sell their home if he brings the seller a buyer, pocketing a commission or a set fixed  price worked out prior to the sale. “The most I’ve ever made was $2.4 million. But since the market crashed, it’s been getting more difficult to do. First, banks don’t want double closings. And new legislation passed is making it harder do these deals. That’s why I’ve moved on to luxury properties.”

Investors expect to be busy for years to come as continued  weakness in home sales fuels more foreclosures, and a backlog of some 1.5 million distressed properties feeds the flipper assembly line. And foreclosure flippers like Kearney, Kozlowski, Chun, Osten and others will make a fortune in a down market buying one distressed property at a time.

These five tips were excerpted from an article in the September 2012 issue of the award-winning Foreclosure News Report newsletter, published by RealtyTrac. Subscribe to the newsletter for a year and get a bonus first issue free.

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