How To Make Money Flipping Houses

By Author: Simon Macharia
Total Articles: 7
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Flipping houses usually refers to buying and selling houses. Flipping houses really means wholesaling houses, though most people think it refers to buying, fixing and selling houses. Wholesaling houses involves buying houses below market value, rehabbing them if they need repairs, then selling them for a profit.

We will consider this meaning of flipping houses for our purposes.

Wholesaling houses is the quickest business model to generate profits in real estate investing. It also needs the least amount of cash invested in the deal. Occasionally you can wholesale houses without using your own cash.

So how do you flip houses?

1) Identify cheap houses
Motivated sellers form the best source of distressed houses. People with legal problems form the best source of cheap houses. These are people with legal issues such as liens on their properties, divorcing, have inherited property, bad tenants, and so on.

The easiest way is to send them letters or post cards. In my business, I send them 2 mail pieces a month apart. Each mail piece prominently sends them to my website URL as the main call to ...
... action. My phone number is less obvious. This way, I drive them to my real estate investor website which pre-sells for me.

Chances are the houses I get are fully pre-screened and pre-negotiated so I need just a few minutes to tell whether it is a deal or not - then make an offer or move on.

Some people wholesale properties that have been foreclosed, but this is not the subject of this article.

2) Sign a contract to buy
Once you have identified a good deal whose figures look appealing, you must put it into contract. In each state, there are contracts regularly used by real estate agents, or you can get contracts that can be used all over the country. I prefer to use contracts mandated by our state real estate commission because they are more popular and most people, including title companies and sellers are more comfortable with them.

3) Begin title work.
The first thing I do is fax my contracts to my title company to begin title work. You must ensure you buy and sell the house free of any liens. This is the work of the title company. As an investor, you do not need to get too concerned about the technicalities involved. I prefer to let professionals do their work.

4) Identify buyer with money
I prefer buyers with real cash in the bank. Cash transactions have few limitations and are more preferable. Most real estate investors buying houses have cash from a previous sale or line of credit.

Alternatively they have private money investors or get cash from hard money lenders.

Avoid buyers looking for traditional financing. Most loan companies will not lend on houses that need restoration and you could have seasoning issues, meaning you must hold the property for 6 months to 1 year before you can sell it.

5) Sign a contract to sell
The amount of money in the deal determines the type of contract you sign. First, you must leave enough money in the deal for the real estate investor buyer. After all they will do rehab work.

If my potential profit is less than $10,000, I prefer to do a contract assignment.

In contract assignment, you simply assign your contract to your real estate investor buyer. In this case you are assigning the contract, not assigning or selling the house. This is perfectly legal countrywide and you do not need a license for it. This contract is usually as little as 2 to 3 paragraphs.

In this case, the real estate investor buyer you wholesale the deal to closes the transaction, not you. You collect an assignment fee once the deal is closed.

If I am making more than $10,00 or my profits are near or the same as the real estate investor I sell to, then I prefer to do a simultaneous closing, also called double closing. This involves buying the house from my motivated seller, then selling it to my real estate investor buyer.

In a simultaneous closing, you buy and sell on the same table, therefore you do 2 transactions. In this case, you own the property for a few minutes before you sell it. Of course, you have to incur closing costs that you do not incur in contract assignment.

The contract for simultaneous closing is just like the one for buying, but with higher price and better terms for you.

In either case, ensure you collect an earnest money check before signing the contract. I always make sure the earnest money is non-refundable if they do not buy the house. Make sure the contract expires before your contract to buy and the property reverts back to you.

6) Collect your profits
You must make ensure follow the transaction process until the deal is closed. You collect your check from the title company when the transaction is completed. It is therefore in your best interest to make sure you close any loose ends and make sure the deal does not fall between your fingers.

How much money do you need to flip houses?
When you sign your contract with the buyer, you may have to put up earnest money, usually between $100 to $500. There is no contract without earnest money. When I sign the contract to sell, I collect an earnest money check which is deposited with the title company.

In double closing, the first transaction can be closed with money from your investor buyer so you use none of your own money. If your buyer source of funds does not allow you to use his money to close the first transaction, then you might need to get transactional funding to a few points to close the first transaction before you can sell.

When all is said and done, the checks you collect from flipping houses will be easy and fast. It is possible to close a few deals a month.

Real estate investing websites

wholesaling houses