It depends alot on your investment goals and risk tolerance. The flip is more risky, so be real careful on your calculations. Make sure you figure all the costs. This is how a good flip goes bad quickly. I've seen it happen.
1) Buyer gets emotional about an already marginal deal and pays $2k more than he wanted to. He buys the house for $100k instead of the $98k he had set as his maximum price. He thinks "What the heck its still a great deal." "It will be worth $135K":smxF:
2) Buyer forgets to include the $2k in closing costs in his calculations.:bgh:
3) Buyers estimate of $10k to 12K in repairs is off a little. It turns out the water heater and the A/C compressor needed replaced and repairs total $15k.
4) Instead of a quick 3 week rehab life gets in the way and it takes 3 months. Thats 3 months of unanticipated house payments, utilities, insurance, lawn mowing, etc. at $1,000 per month.
5) According to the realtor the market has slowed a little in the last 3 months. "We better list that house for $129,900 instead of the $134,900 you were thinking Mr. Investor."
6) After 90 days on the market Mr. Investor accepts an offer of $125K that will close in 30 days. Thats another $4,000 in monthly expenses.
7) The deal closes. Closings costs to seller are $7500 realtor fee (6%), $400 conveyance fee, $100 misc. fees.
8) Mr. Investors check is not what he expected. Turns out he lost about $5k for his efforts even though the house sold for $25k more than he paid for it.:cuss::cuss::cuss:
The moral of the story is be careful with flips. Its not as easy as it looks on TV. Make sure you know what the house will sell for using a conservative estimate. You want a quick sale price which is probably 5% below the comps. Don't pay more than 70% of after repaired value minus repairs. Leave a margin for error on repairs because it will cost more than you think. Don't forget about carrying costs. There is alot of money made flipping. But, there is alot of money lost also. Just be sure you know the risks.
1) Buyer gets emotional about an already marginal deal and pays $2k more than he wanted to. He buys the house for $100k instead of the $98k he had set as his maximum price. He thinks "What the heck its still a great deal." "It will be worth $135K":smxF:
2) Buyer forgets to include the $2k in closing costs in his calculations.:bgh:
3) Buyers estimate of $10k to 12K in repairs is off a little. It turns out the water heater and the A/C compressor needed replaced and repairs total $15k.
4) Instead of a quick 3 week rehab life gets in the way and it takes 3 months. Thats 3 months of unanticipated house payments, utilities, insurance, lawn mowing, etc. at $1,000 per month.
5) According to the realtor the market has slowed a little in the last 3 months. "We better list that house for $129,900 instead of the $134,900 you were thinking Mr. Investor."
6) After 90 days on the market Mr. Investor accepts an offer of $125K that will close in 30 days. Thats another $4,000 in monthly expenses.
7) The deal closes. Closings costs to seller are $7500 realtor fee (6%), $400 conveyance fee, $100 misc. fees.
8) Mr. Investors check is not what he expected. Turns out he lost about $5k for his efforts even though the house sold for $25k more than he paid for it.:cuss::cuss::cuss:
The moral of the story is be careful with flips. Its not as easy as it looks on TV. Make sure you know what the house will sell for using a conservative estimate. You want a quick sale price which is probably 5% below the comps. Don't pay more than 70% of after repaired value minus repairs. Leave a margin for error on repairs because it will cost more than you think. Don't forget about carrying costs. There is alot of money made flipping. But, there is alot of money lost also. Just be sure you know the risks.
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