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Is Flipping Houses For a Living Realistic?

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flipping houses for a living

Are there better alternatives to flipping houses for a living?

If you have cable TV, then you’ve probably observed this viewing phenomenon that has taken the air waves by storm.  During weekends, you can’t flip through cable channels without finding some TV show about how some average people are flipping houses for a living.  However, is flipping houses for a living realistic in today’s economy?  This article will take a look at what is means to be flipping houses for a living and whether or not there are better ways to make a profit in today’s tough real estate climate.

Flipping Houses for a Living | What is it?

flipping houses for a living

US Nominal Home Prices

Flipping houses for a living is an attractive way for beginning real estate investors to break into the real estate investing industry.  After all, the premise is to buy low and sell high, and isn’t that the secret to success in any investing?  However, let’s take a look at that equation.

Buying low in real estate is becoming increasingly difficult because real estate prices are dropping.  As the chart to the right from jparsons.net details, at the peak of the housing bubble in 2006, nominal US housing prices were just under $250,000.  In 2011, the nominal US housing prices is under $175,000.  Given the fact that the median housing prices are still trending downwards, and will probably continue doing so for the next couple of year, determining what is buying low or selling high is difficult.

Due to this uncertainty, banks are unwilling to lend money to homeowners.  The second part of the equation details selling high, but if the majority of US consumers cannot obtain bank financing, then there is no selling high.  Given the uncertainty of housing prices, flipping houses for a living is a very risky proposition.

Flipping Houses for a Living | How to Get Started in Real Estate?

Wholesaling properties is a very popular way for those beginning real estate investors to cut their teeth.  There are two types of wholesaling that you can do in todays economy.

The first type if wholesaling physically distressed properties.  This means finding a property that is in bad shape and requires repair, getting the property under contract, and selling the contract to a fix and flipper for a fee.  An example of a wholesale transaction would be finding a property with a $100,000 after repair value and getting it under contract in as-is condition by paying cash quickly for $50,000 and then assigning this contract to a fix and flipper for $2,500 fee.  You invested no money or risk and made a quick and simple $2,500 by assigning a contract.

However, the downside to this type of wholesaling in today’s economy is that your end customer is the fix and flipper.  Unfortunately, as described in the above paragraphs, the guy who is flipping houses for a living is struggling to find end buyers and may not be excited about purchasing houses.  There are fewer people flipping houses for a living, therefore, there are fewer of these types of wholesalers.

Flipping Houses for a Living | Assignment of Mortgage Payments

The second form of wholesaling that is gaining great popularity in today’s economy is wholesaling financially distressed properties.  In this type of wholesaling, you would find someone with little, no, or even negative equity in their homes that are looking to sell their houses without paying closing costs.  Then you would get the property under contract in as-is condition and agree to take over the mortgage payments.  Finally, you find a potential home buyer who cannot qualify for a conventional mortgage and assign this contract to them for a fee, typically $5,000 or more.  This type of wholesaling is known as the ‘assignment of mortgage payments‘.

The benefits of using the assignment of mortgage payments wholesaling system is as follows:

  • Finding distressed homes at $.50 on the dollar is very tough.  However, finding homes with little or no equity is plentiful. In fact, according to Marketwatch.com, as of March 2012, over 11 million people have no equity in their homes.
  • Average conventional loans realistically require a credit score of 760 or above and even FHA loans require a minimum of 700.  These standards automatically eliminate more than half of the population.  Below is a video of what it took for me, a guy who has participated in more than 1,200 real estate transactions worth more than $200 million in the past 8 years to try to get a loan.

In the book “Blue Ocean Strategy” written by W. Chan Kim, he details that many people compete over the same customer, or have a business philosophy of battling where everyone else is.  This bloody marketing battle creates ‘blood’ in the water, making it a red ocean.  I feel that traditional wholesaling of distressed properties is diving into a bloody red ocean.  Instead, I like swimming in a blue ocean, where there is amply supply and demand with very little competition.   Utilizing the assignment of mortgage payments to sell ‘unsellable’ houses to ‘unloanable’ buyers is much better than flipping houses for a living.

Flipping Houses for a Living | Getting a loan video

Here’s a video of what it takes to get a loan in today’s economy


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