Flipping is an excellent income strategy if it is done properly. But, if you want to flip properties to get rich quickly, you may encounter financially disastrous problems unless you are a very sophisticated and experienced investor.
Generally speaking, flipping is the practice of buying a piece of property and then selling it quickly at a profit. In real estate, it is most commonly seen in four varieties:
1. Buying a property at a low price because it needs repairs and maintenance, making those repairs, and then selling it for a profit.
2. Buying a property at below market price because the owner is in crisis and needs immediate cash, then taking the time necessary to expose the property to the market (usually four to six months) and then selling it for a profit.
3. Tying up property under a contract for some period of time, and then finding a buyer to purchase your contract from you and go through with closing.
4. Pre-construction flips, in which you sign a purchase contract for a property that will not be built for many months or a year, and then selling your purchase contract when the project is completed and prices have (hopefully) increased dramatically.
There has been a lot of hype in the past few years about condo flipping. In most places, the market has cooled considerably and such flips are no longer practical, but people are still interested. In the typical condo flip, a developer must obtain some percentage of pre-purchase contracts before his or her lender will release any money for construction.
That magic number is usually 50% of the total available units. The developer is willing to presell some units at deep discounts because that is the only way it will receive loan funds. He or she hopes that by the time of completion, prices will have increased so dramatically that there is enough profit in the remaining units to make it all worthwhile.
The pre-purchase buyer also hopes prices will increase dramatically. Buyers will make reservations for one or more units in a condo complex that has not yet started construction, and pay a small amount down for the reservations. These are not options, but enforceable contracts. If the developer builds the project, the prepurchase buyer must buy the units it reserved. If the developer does not build the project, for any reason, the buyers' reservation fees are refunded.
The condo flipper counts on prices rising dramatically in between the date of the reservation and the date of project completion. He or she can then sell his or her reservations to someone else and make large profits without ever borrowing money, going through with closing, or having ownership.
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Note: This article was sent to us by: Jason Sternels at 06292010
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