Re: Do’s and Don’t’s - Posted by Millie I.
Posted by Millie I. on October 08, 1999 at 22:29:47:
There are many things you need to know about a 6 unit:
1)It is a commercial property. When financing, your required down-payment may be as high as 30%, unless you have excellent credit history, good income, and a fat bank account. If you do a double close, make sure your buyer has the financing or resources to close.
2)Never buy a property because you “think” the price is good, or the resale price will “probably” be… You are asking for trouble. If you want to be in this business, you don’t just ‘think’, you verify, confirm, you do a ‘comp’, get an appraisal. You have to “know” that you are buying below market value in order to make room for profit when you flip, or you’re setting yourself up for a big disappointment.
3)What are the rents per unit? Are they at market value? Can they support the building and still provide positive cashflow? Why are there 2 vacancies? Are there problems? Will the deal be good enough to attract your buyer, and still give you some walking money? You make sure of that or you have no deal.
4)Did the seller show you all the expenses? Taxes, insurance, utilities, management, advertising, maintenance, repairs, vacancy, etc. You have to consider all these even though you just want to flip. You have to calculate your buyer’s potential profit/loss before you know whether you should buy or pass. If your buyer don’t make a profit, he won’t buy, and you don’t have a deal.
- Have you considered what to do if your buyer fall through right before closing? Do you have a plan B to prevent your seller from suing you for performance? Do you have a sufficient out-clause? Do your homework first.
6)You could just assign your contract to your buyer, and collect $2000 for bird-dog fee, provided that your buyer do not circumvent you, and buy it behind your back. Things like that happen everyday.
7)Investors that post signs out that say ‘I buy houses with cash’ are mostly wholesale buyers looking for a very good deal. If you ask for $150K, they’ll want to pay $80K. They also want you to owner-finance them, or sell it to them with no money down. Such investors do not pay retail, and definately not at full price.
8)My experience with selling retail is to the common folks that wants everything in perfect condition, they will pay full price for ‘full occupancy’ and ‘easy management’. They just want to collect rent. These people are everywhere, but a lot of them go to realtors because they do not know how to buy a house, and they don’t trust you. Experienced investors usually have a list of buyers that they have established a rapport with, and know what the buyers are looking for before they buy the houses to flip to them.
Don’t mean to discourage you, if you want to do this, you might as well know the pros and cons. If Flipping is new to you, maybe you should do single family homes first. They are cheaper to buy, lower risk, and sellfaster.