Flipping: Remodeling for Resale

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Ensure that upgrades keep with the neighborhood. There's no question that this is a great time to buy houses. There's a wealth of distressed properties and people are anxious to make deals. But there's little room for error these days. You have to be smart about the houses you buy and the repairs you make, and be prepared to hold your property for the long-term. Otherwise, you could wind up with a house you can't sell and a mortgage payment you can't afford. If you're going to try to flip houses, here are some things you have to know. Finding the Right House Real estate investors live and die by the numbers. You have to fall in love with the deal, not the house. Great deals aren't going to jump out at you. Experienced investors spend time every day looking for distressed property and have a network of people scouting deals for them. Some investors make a point of taking a different route home from work to look for possible deals. Others, like Sid Davis, a real estate investor and author of Home Makeovers that Sell: Quick and Easy Ways to Get the Highest Possible Price, recommend picking out a particular neighborhood and driving through it regularly. "Look for the best deal in the best neighborhood," Davis says. "Even in the best areas, there are always people who need to sell quick. Pick a target area you want, make up flyers that say, 'I can close in a week' or 'Cash up front.' There are a lot of people in trouble. That's a powerful way to (find houses)." What you're looking for is a house that you can buy for at least 25 to 30 percent below market value, Davis says. That's the only way you're going to make money in today's market. Finding Financing Even when mortgage underwriting was loose, bankers were tougher on investors than owner occupants, requiring more money down and charging higher interest rates and fees. Today, lenders are tighter than ever when it comes to loaning money for real estate investment. Make the right repairs and renovations. "There is no conventional repair money available right now," says Vena Jones-Cox, a Cincinnati, Ohio-based real estate investor and past president of the National Real Estate Investors Association, referring to a loan that was once commonly available. Lenders would loan investors 80 percent of the appraised value of the house with the repairs. "Expect it to remain gone until at least the middle of 2008," she says. A big financing trend for real estate investors is developing private lenders from among family members, friends and colleagues who don't want to invest in the stock market but will lend money for real estate at 8 or 9 percent with no points "as long as the deal makes sense," she says. "It still tends to be limited-time money—most of those investors are not comfortable with terms of more than a year." For rehabbers who own a home, it may be easier to get a home equity line of credit and use that money for the required down payment. But understand what you're doing. You're putting your own home at risk if you can't sell the property and fall behind on the payments.

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