Fortunately the internet makes home insurance shopping much easier especially with sites like InsWeb for the US and Money for UK residents. InsWeb provides a free database  which offers quotes from up to 8 insurers and the UK Money site provides up to 20. They are basically search engine comparison sites so you can access quotes from one location without having to hop from one insurance site to another.

There’s also an article on the CNN site under the money section which I recommend reading that discusses the top things to know about insurance. They even provide some other good articles worth reading pertaining to home ownership in general.

Insurance coverage and requirements also vary based on which state and country you live in. For example, I live in San Francisco which is very earthquake prone so an optional earthquake insurance option is available. Others who live in the mid-west are prone to hurricanes so their insurance will be more expensive.  Regardless of your location, it’s always important to seek out and find at least 2-4 quotes before making your decision. Not only will you save money but you’ll also have peace of mind knowing that you didn’t just select the first insurance plan you came across. Good luck in your search!

Some investors will say that your time should be spent finding and managing properties, not painting or hammering nails. Otherwise you’ve bought yourself a job, they will tell you, rather than an investment. Although I tend to agree with that idea, nothing is that simple and definite. You can make money flipping real estate either way, and there are reasons for both approaches.

Doing It Yourself

A question: Do you make more money or less money when you do your own work? It depends on how you look at the matter. You might make more money on a given project. If, for example, it costs $3,000 in labor for roofing, and you do it yourself, you can make $3,000 more profit – if you work as fast as the professionals would have (there are holding costs to pay if you’re slow). But if you do a lot of the work yourself, you might flip just a couple houses a year, rather than the dozen you could do if you paid others to do the work.

What you do get working on your own, is a bigger margin of safety. At least you CAN get a bigger margin of safety, but those of us that aren’t as skilled in the building trades might screw things up and have to hire a professional afterwards. On a house with a projected $20,000 profit after paying for labor, you might save $8,000 by doing much of the work on your own. More profit perhaps, but it also means that if there are unexpected expenses or you guess wrong on what the house will sell for, you’re less likely to have a loss.

You might also consider your cash situation. If you don’t want to bring in other investors, can’t borrow enough money, and don’t have much capital, you can get by with less by doing a lot of the work. You could even live in the home while you fix it up. It’s easier to get financing, and if you stay there two years before selling, you don’t have to pay taxes on the capital gain.

Flipping Real Estate As A Business

As a business, there is no doubt that you have the opportunity to make more money paying for help. An investor I know flipped fourteen houses one year, something he never could have done if he had been painting the homes or laying linoleum. He never got dirty, and he made it clear that he thought his time was better spent finding the next deal, while his crew finished the houses that he was flipping.
Your Choice

What’s the best approach? Well, there is more money to be made finding deals than hammering nails, but what if you need a safe small deal to get going? What if you’re short on cash and can’t borrow much? Finally, what if you enjoy the process of fixing up houses?

They are all good reasons to do the work yourself, or at least some parts. The bottom line is that there is no absolute right way to make money flipping real estate.Changing ways is natural too. After all, investors can investors learn a lot by getting involved with the renovation work. That kind of experience might mean that you save money and make better decisions later, when you are just finding deals and letting others do the work. In any case, the choice is yours.

1. Know Your Numbers

How much will the house sell for when it is ready? A clear idea of the ARV (after repair value) is necessary to safely make an offer on a property. Don’t just guess that you’ll sell the home for $20,000 more than what you put into it. You don’t decide what a home is worth – the market does, so get advice if necessary. Then subtract from the ARV all possible costs you will have, including price, buying costs, repair costs, holding costs, and the costs of selling. Now subtract the profit you want, and you have the highest price you should pay. Start with an offer lower than this, of course.

2. Schedule Properly

More than a few house-flipping projects have gone wrong due to falling behind schedule. For example, you think you can get the plumber in and out of the house in the first week, but it takes a month, so you can’t close the walls up, and everything else gets behind schedule. Meanwhile your spending $2,000 per month on holding costs like loan payments, utilities, property taxes and insurance. So check before you finalize the offer, to see how long things like windows, plumbing and dry-walling will take. Also, make completion dates a part of any contracts you sign with contractors.

3. First Things First

On one of those “flip a house” programs on television the other night, a young couple was running $10,000 over budget on their first fixer-upper investment (and six weeks behind schedule). They ran out of money and put the house on the market with a crappy-looking yard and stains visible on the front wall. Of course buyers would see these things first, making a bad impression. Avoid this by starting with changes that are most important. Then if you run out of money or time, you’ve already done the things that will make the home sell.

4. Figure The ROI Of Improvements

The ROI or return-on-investment for each possible improvement should determine what you do to the home. You’ll be guessing at times, but the principle is that you do only those things which increase the value of the home substantially more than what they cost. Such high-ROI improvements vary by area and by type of home, but they typically include painting, carpeting, landscaping, and finishing unfinished space. With a small house, you might get new flowers and bushes, fresh paint, and all new carpeting for less than $7,000, and possibly raise the market value of the home by $14,000.

5. Know Your Buyers

A single level ranch in a neighborhood full of retired couples, won’t sell well to young “yuppies.” Know what kinds of buyers are likely to want the home (and neighborhood) before you start. Then, after improving it with those buyers in mind, market it appropriately. You or your agent should identify and advertise the benefits that matter to your buyers, whether this includes “close to stores” or “country living.”

6. Price It Right

Selling fast means you save those holding costs. You may also have other projects waiting for that money. To sell fast, price it slightly below market value – and let buyers know it’s a deal. It may seem that if you sell for $3,000 under market, you’re losing $3,000, but you are possibly saving a couple thousand in the holding costs you’ll pay if it takes an extra six weeks to sell at a higher price. Also, if you are a serious investor, flipping a house fast means getting the money into the next project fast. Buy right, and use the other tips here, and there should be plenty of profit left in any case.

I love getting these sort of emails and thought I’d share our conversation with you since he’s not the only one looking to do this. Here’s his email to me:

Hi David, I came across your blog and have found that its fresh, open and direct approach really set it apart from the glut of information out there. So thanks, and I look forward to exploring the site more fully! I’m wondering if you offer any one-on-one coaching or personalized tips for the beginner (in this case, one with a little bit of money to start with).

A little about myself: I am a 33-year old classically-trained professional musician who recently completed a Master’s degree at the Yale School of Music in Connecticut. I have been making a decent living for the past 8 years as a full-time musician, and have really enjoyed some wonderful experiences performing in other countries, etc. However, now I am thinking about settling down with my fiancé, and would like to explore opportunities in real estate more fully.

I recently sold my first property, a condo that I bought when I began my studies at Yale in 2004. After the expense of some cosmetic upgrades and broker’s fees, etc., I will net about $55,000 at the closing. This really opened my eyes to the power of investing, especially when for the past 3 years I have been living in a beautiful, spacious condo personalized to my tastes, while my peers have been paying about the same amount to live in small apartments in cramped buildings.

My basic question for you is this: do you think it’s possible for someone to get started in real estate investing with $50,000, and if so, what are some of the approaches that one might take? I looked into becoming a realtor, but I don’t think that that is the way for me; I’m more interested in investing and rehabbing properties. I have a good eye for design, etc., and am able to do cosmetic repairs myself, though I would rely on a contractor for serious remodeling like roofing, etc. I am relocating from Connecticut to the West Coast due to my girlfriend’s job situation, and I hope to devote as much time as possible to real-estate investing, while working a separate part-time job if neccesary.

I hope that you can offer me some insight, and again, I appreciate all that you do to share your knowledge with people like me. Thanks!

Here’s my response to John’s email:

Hi John-

Thanks for the complements and I appreciate your email. You’ve got off to a great start thus far! I actually don’t provide any “official” one-on-one coaching but I’m happy to give you some advice. When I first started it was all self-taught either by reading books, online information, or just trial by fire. I never really had someone to take me under their wing which is usually the best way to go.

Based on the situation you explained below, it’s definitely possible to get started in real estate with only $50,000. That’s more than most people have to begin with! So the big question is where to start. Flipping properties is a very lucrative business especially if you enjoy fixing up places and looking for deals. I’ve always wanted to do this myself but living in CA makes it tough since the market has softened and it’s important to be driving distance to these types of projects. If you feel the real estate market in your area is in better shape, I’d go for it. I’d also recommend a couple great resources to get your started. The first is a book called “Find It, Fix It, Flip It!” (aff) by Michael Corbett and gives you a great step by step approach to flipping properties. The second is checking out economic reports by a fellow named Ingo Winzer. He saves you the hassle of trying to do your own real estate research by providing amazing reports. Each one costs $99 per city but it’s well worth it. http://localmarketmonitor.com/

Those tips should get you started so after you get going, let me know if you have any other questions along the way and I’ll do my best to answer them!

Good luck!

~David

Now there are many different responses and additional details I could have provided him but each real estate investor needs to do some research and reading themselves. I find that books and just reading blogs or websites is the best way to increase your knowledge before purchasing your first investment property.

FSBO, pronounced “fizbo” means “for sale by owner.” Owners try to sell on their own primarily to save the cost of a real estate broker’s commission. This is often a mistake, for many reasons we won’t get into. The bottom line is that these houses statistically sell for less on average than those sold through an agent, negating any savings.

One reason this is true is that buyers know the seller is saving the commission, and are inclined to offer less as a result. Sellers are open to this because they think something like, “If the commission would have been $8,000 and I sell for $4,000 less, I still save $4,000.” For this reason, and because owners often don’t know how to properly price a house, many new real estate investors think that they are going to get some great deals with FSBOs.

The opportunities to simply buy cheap FSBOs and resell them for profit are just plain rare. It’s true that FSBO homes often do sell for less, especially after sellers get frustrated with their poor marketing skills and tired of waiting month after month for a buyer. But even if you buy a house for 15% under market value, the transaction costs of buying and selling it can run 10% of the final sale’s price, and holding onto the property while waiting to sell can eat up the other 5%.

So where is the potential for flipping FSBO homes? It is in fixer-uppers. A 10% discount from market value may leave you breaking even on a straight flip, but with a fixer-upper it just means that much more profit. Let’s look at an example.

Flipping Fixer-Upper FSBO Homes

Suppose you are looking at a fixer-upper. The ARV, or “after repair value” will be around $180,000, after about $25,000 in expenses for buying it, repairing it, holding it and selling it. Of course no one deals with a problem house for fun, so the market for such a house is mostly investors, who expect to make $20,000 for the risk and work involved. That puts the market value at about $135,000 ($180,000 minus the costs and profit expected).

This might be a typical fixer-upper in your area. But if the house happens to be for sale by the owner, you might do even better. Let’s start with the assumption that the home is ugly, is already priced at $135,000, and due to the owners poor sale’s skills (common), it has been on the market for six months. The seller is frustrated, and when you talk to him, he mentions that he is considering listing the property with a real estate agent.

You point out that if he gets $133,000 – close to his asking price – a 6% commission will cost him about $8,000. Furthermore, buyers might ask that he pay $2,000 of their closing costs, and in three months he’ll spend another $2,000 holding onto the property. He’ll clear $121,000 – or he can sell to you now for $122,000, close in a week, and avoid the trouble.

Suppose he eventually agrees to $125,000. The other numbers didn’t change. The house will still sell for $180,000 when ready. In other words, you just made yourself an extra $10,000 on what was already a potentially profitable fixer upper. This is how flipping FSBO homes can be made to work.

Example: If you buy a house for $120,000 and the houses in the area sell for $155,000, and the house needs $15,000 to fix it up. You are now at $135,000. Carrying cost for six months on the home is $6,000. Now, at $141,000, and the fees and closing cost my extra 5% $6,000. Now, cost is at $147,000, and that is if everything goes as planned. Profit is under 10,000 dollars. The mistake was made at the purchase at the home, not the sell.

2. Get an inspection on the home – Get a complete inspection done on your property. By, spending a few hundred dollars on this expense you can save thousands in problems that you cannot see. Foundation, Pest, Wood Rot, Etc… By, getting a full inspection you can rest assured that you know every thing that is wrong with the property before its to late. In the contact for the house you need to make sure that you have 7 days to have a inspection preformed, and if the inspection finds problems that are going to cost more money that you are willing to spend you can get out of the contract with no penalties.

3. Don’t do the work yourself: – Get a contractor or several sub-contractors and have the work done quickly. You need to have you house flipped ASAP, so that you can get it on the market and get it sold. When I started flipping my brother and me did a house together, and we did all the construction. I had a construction background and figured it would save thousands, but it took us over 4 months to get the work done that a contractor could have had the work done in a month. But, we trying to save money on our flip did all the work on our time off and after work, and it just took to long. On our 2′nd flip we used contractors for almost everything and had the house completely flipped with a new roof, new air conditioning, new hardwood, and much more in only 3 weeks. We did not have to spend all our time working on the property and were able to spend that time looking for the next deal. This is how you get rich in real estate.

4. Place the property 1 to 2 percent below market value: If you are wanting to flip real estate and make money the object is to buy and sell the property as quickly as possible, so that you can move on to the next house. If you purchase a house and try to sell it at top dollar to make and extra couple of thousand dollars on your flip, and end up holding it for 6 months you are loosing money. Get the house on the market at a price that is going to blow the competition away, and you will sell it no matter what the market conditions. On our second house the market for selling house went down do to the housing market as a whole, and the tightening of the loans across America. We were told that you could not sell a property in this market, but we went ahead anyway and flipped our house. After 3 weeks on the market we had 3 people wanting to buy the house. Why, because we offered it at such a great deal that people wanted to jump on it. That is what you have to do especially if the market is slow.

5. Use a real estate agent – Do not try to sell you house on your own. Harness the power of a real estate agent and the power of the MLS system. When you do a FSBO you are depending on people driving by your house and seeing you sign, with a real estate agent you have some one actively marketing you house to get it sold. Once again this will free up more time for you to look for more great deals. If you want to help the process I have found that craigslist and listing you house in google adwords help to, but I use these tools with the help of a agent to make sure I have all my bases covered.

I hope this article has been helpful with the basics needs of flipping a house. If you will study and learn you will make money. But, do your homework before you purchase a house, and make sure that you can pull a profit on your deal. Then, make it happen!

By: Chad Wiley

www.houselistedfree.com

For example, if you expect the property to grow in value only modestly, and for very little income coming in each month, is it really worth the risk? If you believe that your income from owning rental property will not be substantial, there might be other alternatives for investing your money.

The amount of rental income you project to receive is a good indicator of whether or not the property is a valuable investment. In some areas with high demand for rental units, monthly income can be significant, perhaps even exceeding your mortgage payments and other monthly costs to produce a nice positive cash flow each month. In turn where the market is relatively soft, the viability of real estate investing makes this idea much less attractive.

So how do you calculate if a property is going to cash flow positive? It all comes down to simple math. First begin by calculating the known costs of owning a property such as insurance, property taxes, utilities, property management fees (8-12%), unforeseen maintenance costs (usually 10%), and your monthly mortgage payment. Once you have that number you basically have your monthly operating or debt expense calculated.

Next you want to calculate all the money coming in which is essentially your rental income from each unit. The best way to do this is to ask the seller’s for an APOD (Annual Property Operating Data) which is an operating statement that conforms to standard real estate practice. This should include the current rent roll for each unit and the total income coming in.

In more cases than not, the sellers I’ve dealt with usually say the tenants are paying below market value and the rents have room to increase.

If that’s the case, then why haven’t the owners already increased the rents to make more money each month? The answers I’ve heard have varied but to be honest there’s no substitute for good dependable tenants even if they’re paying $50 less each month in market value rent. A change in ownership is also a good time to adjust the rents moderately especially if you’re bringing in new tenants.

Now take this data and lay it out in an Excel spreadsheet or even on a pad of paper to begin your math. After you subtract the fixed expenses from your net income, you’ll have a good idea how much money you’ll be able to pocket each month before you even buy the property. Please note, this worksheet you are putting together is an example only. While it allows no provision for the unexpected expense or for any period of vacancy, it also excludes the potential growth in real estate property value during the year which cannot be known of course. In other words, make sure you consider all factors besides these rough numbers.

The one mistake I made from buying my first property was making sure that it would be cash flow positive each month. It wasn’t and I was paying $100 out of pocket (which didn’t seem bad at the time) but it’s still a property I was betting the farm would increase in value. That gamble did not pay off and my Las Vegas property ended up being a loss and I sold it after only two years of holding. It was an expensive lesson and one I don’t want you to make as well. Bottom-line — do not purchase an investment property unless it is break even or cash flow positive. Trust me, it’s not worth it.