How to Flip Real Estate Using The 1 Secret Nobody Will Tell You About…
Sometimes when first learning house flipping, your gut instinct is oftentimes wrong.
This is why you need a house flipping team to rely on – a team that will help you work through some of the more confusing aspects of house flipping.
This team can help you with this because they have something you don't have...yet.
How to Flip Real Estate With "OPM"
Previously, we've talked about how to flip houses with no money using other people's money or "OPM" for short. In the same way,you can use other people's experience (OPE?) in order to help you to learn how to flip real estate – while minimizing your downside risk.
One of the most exciting parts of learning how to real estate is when you first get to sell the property. Finally, after months of hard work, rehab and stress, it finally time to sell!
Although many real estate investors sell their completed house flips themselves without the assistance of a real estate agent, as we've written here before, I prefer to hire a qualified real estate agent to sell all my properties.
The Current Market Analysis
The first thing you want your real estate agent to do is to do a competitive market analysis on the property. In a market analysis, the real estate agent uses the multiple listing service or MLS to show comparable or "comp" properties which have recently sold in the area.
After they do their competitive market analysis, there are now two possible scenarios:
- The property's value has increased from the original ARV
- The property's value has decreased from the original ARV
Obviously, the first scenario above is the most preferable one. Should the second scenario occur, thanks to the 70% rule you used when buying the property, you have a cushion against unforeseen conditions such as this. If any downward market momentum occur, the 70% rule can assist in safeguarding you against potential loss.
This is obviously another reason why we try to flip properties as quickly as possible so that we are not caught in any downward market conditions. Not only that, but the quicker you sell a property, the lower your soft costs are, as we have discussed previously.
The Secret Strategy to Flip Real Estate
Now here's the secret. If the competitive market analysis does come out to be lower than your original ARV, don't fight the market.
Instead, trustyour real estate agent to give you an accurate market analysis price. When you're first learning how to flip real estate, this may be an extremely difficult to do. After all, you're in this to make money right? And if that's the case,why would the real estate agent want to list the property lower than your ARV?
This is where you want to use other people's experience in helping save you from yourself.
Sure, when you first look at it, listing a property lower than your ARV may seem like a ridiculous thing to do. However, when you first learning how to flip real estate, look at the numbers:
If you list the property above fair market value, in most cases you'll spend more money in soft carrying costs
This is because you most likely will hold the property for a longer period of time. And the longer you hold onto a property, the higher your carrying costs or "soft costs" will be.
The How to Flip Real Estate Secret Strategy Revealed
For example, let's say you have a property with a $100,000 loan at 10% interest you're trying to sell. The longer that property takes to sell the more you pay in interest. Here are three scenarios:
- If it takes you 6 months to sell, your interest would be $5,000
- If it takes you 9 months to sell, your interest would be $7,500
- If it takes you 12 months to sell, your interest would be $10,000
You can see above that the longer you hold onto the property the more that property ends up costing you in the end. . Additionally,this figure does not factor in other carrying costs like real estate taxes, insurance, utilities, maintenance, and any other fees. All these additional "soft costs" can eat away at your margins as well the longer you are paying them. Here's the bottom line:
The longer you hold on to a property, the greater your carrying costs
And if you have not priced the property according to the market analysis, there is a greater likelihood that your profits may evaporate as a result.
So when first flipping real estate or even if you been doing it for quite some time, take the advice of your real estate agent. Use "OPE" and trust in their professional judgment. This maybe a difficult lesson to learn when you're first starting to learn how to flip real estate, but the more house flips you do, the more you'll learn.
And this lesson will save you thousands of dollars in potential losses the longer you flip homes.
So when you are about to sell, make sure you price the home according to the current market conditions, not to what you want those conditions to be. If you've used the 70% rule correctly, you be insured to lock in profits and lessen the chances of any potential loss.