Location is often cited as the most important part of the puzzle for fix and flip investors, and picking the right one is an ongoing challenge for many. Fix and flip deals typically involve purchasing a property in a good area below its general market value, renovating it and reselling it a few months later for a profit. Fix and flip investors will often make use of more than one method of lead generation when looking for a potential property, with networking being among the most popular methods of finding a place of interest for investors. But other options also exist to find a prospective property.
Professional home flippers can find properties in the following ways:
Foreclosure Auctions
Foreclosure auctions take place when an individual fails to pay their mortgage payments for an extended period of time, resulting in the lender ultimately repossessing and auctioning the property to make up the cost. For real estate investors, these properties include some of the best deals to be found in the industry. Banks are in the business of lending funds, not maintaining real estate, and are likely to offer discounted prices to buyers in order to avoid managing the property themselves.
In many states, once the needed legal processes have been completed, the property is often sent to be listed at a public auction and sold to the highest bidder. This is known as a “Trustee Sale”, and the bidding will open with a starting bid of whatever is still owed on the property itself.
Short Sales
A short sale involves the sale of real estate in which the net proceeds from the sale will be less than the debts held by liens against the property. In these cases, if all lien holders agree to accept less than the amount owed on the debt, the property can be sold. Short sales are an alternative strategy to foreclosures, and have become more common over the past few years.
The biggest benefits to be gained from this method are in the increased chances of purchasing a property for a reduced price, and that the sale will be completed quickly due to the presence of motivated sellers. With more traditional real estate sales, the seller is responsible for fees and charges, but in short sales those fees and commissions are paid by the bank.
Wholesalers
Real estate wholesaling is a more short-term strategy investors use in order to make profits from real estate. With this method, the wholesalers will contract a home (typically in a distressed state) with a seller, shop around for potential buyers and assign the contract to one of them. The goal with this method is to sell the property to an interested party before the contract with the original homeowner reaches a conclusion. Accordingly, no money is exchanged between wholesaler and seller until a buyer is found and the deal is closed.
The wholesaler profits by finding a buyer willing to purchase at a higher amount than the agreed upon amount by the seller. The price difference, paid by the buyer, is the profit which is collected by the wholesaler in this situation.
Mailers/Advertising
Good real estate deals can be difficult to find due to the large amount of people looking for homes at any single time – a sole, available property might receive overwhelming amounts of attention and offers within only a few days of hitting the market, and it can be difficult to stand out as the best buyer.
This is why real estate investors will look outside of common listing services and try contacting owners directly to see if they would be interested in selling their home. A certain percentage of the population will consider the question seriously enough to sell, so it’s good to approach them before they even decide to list the home officially. The best owners to approach in this situation are absentee owners, people who own properties but don’t occupy them such as with vacation homes. These might also be landlords, owners of inherited properties or others.
Fix and flip investors will often make use of more than one method of lead generation when looking for a suitable property to purchase. Other than networking, these investors will make use of strategies such as going to foreclosure auctions, short sales, working with wholesalers and mailers or advertising to find properties in good locations.
Each method has its own advantages and drawbacks, but provide a way to get in contact with properties that could be less expensive for the real estate investor overall. For savvy real estate investors, these properties can be among the best deals to be found in the industry. Once you’ve found a great deal, use a hard money calculator to figure out your holding costs and profit margins.