89. Make $10,000s per year – Make money by flipping properties
Another, third way, to make money in real estate is by purchasing property directly from distressed sellers at a huge discount, then sell it for profit.
If you don't buy foreclosed properties, buy direct from sellers. People who sell it themselves are saving money on real estate commissions or are distressed. They should be able to sell for less. But doing things without realtors also means more education for you. So be knowledgeable before you try bringing home the savings.
The idea is simple, many direct sellers of properties are in distress, like divorce settlements, debt problems. You could buy these properties direct at a huge discount.
For example; for a $150,000 house on sale, you may offer them $120,000. A $200,000 house, you offer $150,000. For a $300,000 house you offer $230,000.
Then, once you purchased the property, you do a little bit of renovation or redecoration and sell the property back on the market only months later for a $30,000, $50,000 or $70,000 profit.
You can often negotiate a lower sale price by employing a buyer broker who works for you, not the seller. If the buyer broker or the broker’s firm also lists properties, there may be a conflict of interest, so ask them to tell you if they are showing you a property that they have listed.
Do not purchase any house until it has been examined by a home inspector that you selected.
Some of the difficulties are that:
1. You have to propose to a lot of sellers (and investigate their properties) in your neighborhood. Maybe only 1 in 10 will accept your offer. You can talk the price down, like by saying: a lot of renovation costs are required, etc
2. Meanwhile, once you bought a property at discount, suppose on a mortgage, you have to make monthly payments for the property which cuts in your profits, unless you can instantly rent out the property and have a renter pay for the mortgage. Same way goes for paying the property taxes each year.
3. You are depending on how the real estate market goes, whether there is a housing slump or not, and whether you can sell those properties back within your time-frame, like 1-2 years maximum for your estimated profit.
4. You will be taxed on your personal income taxes for any profits you make, buying and selling properties, which cuts in your profits.
5. In case you sell those properties through realtors, you have to pay them a commission, which also cuts in your profits.
Therefore, purchasing foreclosed properties at a 30-50% discount may be less of a hassle.
You could still do a good deal however if you buy a to-be-renovated property at a big discount. The risk is that you may underestimate the real renovation costs necessary.
Another way to make money flipping properties is by signing a contract with the seller, that you have the right to purchase a particular property for X price (which you can negotiate down) within a time-frame of several months, and you find yourself a buyer within the time-frame of your contract that wants to buy it at (current or) higher price.
The advantage is that you don't have to make any mortgage payments, neither you have to pay property taxes until the property gets sold. The seller may also ask money upfront (like several $1,000s) for giving you the right to purchase their property within a particular time-frame.
Check on Google, for the term “flipping properties” if you are interested in this type of investment.