FACS Flipping Warning

We at FACS (Foreclosure Alternative Certified Specialist)have no intention to be on our soap box or to tell agents what they can or cannot do. Within the last year there has been a dramatic increase of ‘Option contract’ flipping. The good news is that yes option contracts are legal. The bad news is that an option contract is not good for anyone beyond the middle man investor. Option contracts expose a seller to a higher liability of recourse debt and could exploit a homeowner to greater tax related penalties. BEWARE of the legal and especially the ethical issues in option contracts I assure you staying away from them is the wisest way not to be sued by a past client. Besides I have had Cracker Jack box attorney’s tell me they would be more than happy to take any option contract case pro bono.

Flipping houses is becoming big business in the world of real estate investment. Unfortunately it takes all kinds of ‘flippers’ to make the world go around and some of them aren’t nearly as conscientious as others. If you are going to get into the business of flipping houses and want to make a living, and build a good reputation, for producing quality results you need to see to a few details throughout the process.

1) Do what needs to be done. Don’t cut corners and create situations that will put the family that purchases your home in personal or financial risk. You want to create a safe home for the family or person that ultimately makes the purchase. You do not accomplish this by taking shortcuts and using shoddy workmanship.
2) Avoid spending money that doesn’t need to be spent. By this I mean don’t spend money creating more work. Many people do this by deciding to tackle additions, rip out walls, or changing floor plans. These kinds of changes are best left to the buyer unless they will significantly improve the asking price you can bring in on the house. Otherwise spend the bulk of your money in kitchens and baths where they are best known for bringing in bigger profits.
3) If it ain’t broke don’t fix it. There is a lot of wisdom in this age-old saying. There is no reason to go in and fix something that doesn’t need to be fixed unless doing so will improve the value of the house to its buyers.
4) Always work within a budget. Most people set a budget when planning to flip houses but very few manage to work within that budget. This is the difference in making the profits you anticipated and putting the entire project at risk.
5) Create a home that the buyer will want to live in not the home that you will want to live in. You should never flip a house or design a flip according to your tastes; it is a recipe for disasters in more ways than one. First of all, it is unlikely that buyers will be able to afford it. Second, it sets you up for hurt feelings if a potential buyer rejects any small details. Third, it often raises the price you must seek for the property in order to cover the increased costs of decorating and designing according to your taste. Finally, it often leads to unnecessary expenses, which defeats the purpose of a quick flip type of project.
6) Time is money. Remember this in all things. The more time it takes to do the flip the more money it’s going to cost and the less money you are going to make. Plan small changes that have a big impact and can be done quickly to get the most out of your flip.
7) Never attempt a champagne flip unless you have a champagne budget to back it up. Just as flipping above the market is an unwise move it is equally unwise to flip a property beneath your target market as well. Do not attempt to flip a house in an upscale neighborhood if you can’t manage the upscale building supplies and appliances that will be needed in order to make it a success.

While these aren’t guarantees for success they are solid advice that will minimize the risks you face when flipping properties.

Keeping an ethical head will greatly reduce your personal exposure to legal issues and your reputation will be such that your investor pool should greatly increase.

-Christopher Rockey