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How to Flip a House

Flipping a house

"Flipping" a house consists of buying a run-down property below market price, increasing its value, and rapidly re-selling it for a quick profit. This is different from development investing, in which the buyer purchases a property under development, then sells or rents the unit when it's ready for occupancy. If you play your cards right, you can make $50,000 or more per flip, and do it in under 90 days.

Sensible Purchasing

Familiarize yourself with how to buy a house. If you've already done that, then you already know the process and it's second nature. If you have not ever purchased a house, then consult with a realtor and a financial adviser. There are a few steps involved when purchasing a house so you need understand that process, such as: placing an offer, getting a mortgage, removing conditions and taking possession.

• Placing an offer: Since verbal offers don't constitute a legally enforceable sale, you need to draft a written offer and give it to the owners and/or realtor. The offer stipulates price as well as the terms and conditions of the sale. If the offer is accepted, the offer becomes a legally-binding sales contract.

• Getting a mortgage: Unless you have heaps of cash handy, you'll need a mortgage. There are dozens of kinds of loans out there, so examine the ones that might work for you and talk to a mortgage broker if you have any questions. Some mortgages (ARMs) have special "teaser" interest rates that stay low in the beginning and raise up significantly after a certain period of time. These might be attractive if you plan on selling the house quickly.

• Removing the conditions: This is usually what the buyer does once the seller has accepted their offer. It is a legal move that the buyer (usually) makes in order to communicate that any obligations entered into by both or either parties have been met.

Location is everything. An okay house of the corner of main street will sell for a lot more than an awesome house 5 miles (8.0 km) from anything. Be wary of location when buying.

Understand the Risks of House Flipping

Flipping a house can be risky. You're incurring a large amount of debt for a potential payoff in the future. Except sometimes, that payoff doesn't materialize, or it doesn't materialize as quickly as we might have liked. You could be sitting on a property for longer than expected, paying a mortgage, property taxes, and continual upkeep. Sometimes, you will need to sell a house for less than you bought it for. Often, you're at the mercy of a quivering housing market.

The amount of physical effort required is also a potential risk. How fit are you and how willing are you to do a lot of the DIY work involved in flipping the house? If you've never done renovations or fixes before, it will be a steep learning curve and the less you know, the longer it'll take to flip the house.

The idea behind flipping is that you can make a sale before interest begins to accrue on your loan. If you find yourself sitting on a "black hole," cash out as best you can; a loss of a few thousand dollars is nowhere near as bad as a decaying property and a mountain of lifelong debt.

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