Flips, flipper, flipping. You have all heard those words. We are not talking about hamburgers here. What does it conjure up in your mind? Buying and selling real estate quickly? Easy and serious money? No risk, high rewards? Or high risk, unknown rewards? Maybe the song goes through your mind: “fools rush in where angels fear to tread”, or you believe in the age-old sage adage: Act in haste; repent at leisure.
What’s it All About Alfie?
Whatever you think, here is an explanation of the reality of the process.
Flipping real estate means buying and selling real estate before closing of the deal and transfer of property, or shortly thereafter, eg within days, weeks or months. The purpose is to get in and out in a “hot” real estate market with rapidly rising prices and high demand, without the expense and hassle of carrying the cost of financing the property, or getting renters. Flipping is not real estate investment, but real estate speculation, with all the inherent risks and rewards that go along with speculating in any type of commodity. Speculation always assumes the market cycle will continue going up rapidly. However, as we all know or should know, real estate, business, or investment markets do not keep going up forever, as there is always a buyer price point ceiling, lender financing threshold comfort level, or revenue/expenses numbers that don’t make sense to a real estate investor. Any type of market is always cyclic, what goes up does comes down over time, or at least slows down and plateaus, and then goes up again at a different pace.
Flipping consists of two main options and variations of them.
Option # 1 – Before Closing:
In this option you want to find a buyer for the agreement of purchase and sale before you close the deal but after you remove any subject conditions, and assigning your interest to the buyer, who closes the deal. You would receive money for the assignment in this example, which would include the down payment you paid, plus the extra money you negotiate for the assignment. In this example, your plan is not to close the deal and have to arrange financing, but have a buyer already arranged, or know (or think you know) how to find a buyer of your agreement, who wants to take it over. If you have a long closing date, for example, 4-6 months for an existing property, or maybe a year or longer for an undeveloped pre-sale property, you can try to find a buyer while real estate prices are going up quickly over that time.
