Building And Flipping
OK- pardon me because I am new at this, but it seems that this is a great way to make money. I have talked to two builders who would carry construction until we get the certificate of occupancy and sell it to me for 5-10% less than appraisal (retail) price.
I am thinking of two different ways to make money on this. First, simply do a double close or close to it and simply sell to a buyer almost like a FSBO.... The market here is hot for new construction. Especailly one of the builders I am talking to- cannot get them done before they are sold... The trouble with this is I don't have @ 125-150K to make this option worth while and I don't want to pay closing costs or be subject to a prepayment penalty from a conventional lender...
Second option would be to simply get conventional financing and do a lease option for one year at a time to the tennant buyer.
My main question is there some creative way to get option number one taken care of without closing costs or prepayment penalties? I do have home equity of close to 86K that I can use at 4.5% right now...
Any ideas? Anyone else doing this sort of deal- does this sound competetive??
The thing that jumped out to me is that the builder is looking to sell to you at only 5-10% below appraisal value. Appraised value can be that much over FMV. It just doesn't seem to be a wise way to make money. We need more information however.[ Edited by myfrogger on Date 12/25/2003 ]
Right- I acutally would have to do my due diligence and make sure the "appraised value" was actually what I could get on the market.
I do have an appraiser I can trust. I would request that he be the one who does the appraisal and make sure we are at actual market.
Sounds like 5-10% is not a good deal? What do you think is a good price off of actual retail for an investor?
?Right- I acutally would have to do my due diligence and make sure the "appraised value" was actually what I could get on the market."
I sugest you do as follow: Take your equity line of credit, order the first calss tickets, fly to New York, take an appartment at Plaza and practice CRI by making offers on Donald Trump buildings on Manhattan. Start right away with Empire State Building because if you wanna do the invers piramide investing right, why start with houses which you cant aford. Buy skyscrapers or don't bather at all.
My advice to you would be to find a partener with more cash so you can buy from builder and sell it in month period of time, for 10% profit. Flip yearly 10 houses and you are in the cash game.
Fliping with cash is what you wanna do and take care of your Taxes. If the La Grand can make more money with no down real estate investment, he wouldn't teach newbees. Would you?
[addsig]
I have absolutely no idea what the above post means.
Anyway, the margin the builder is giving you seems way too thin and much too close to a retail deal.
I would suggest you find three or four builders and have them bid against your current bid. You may find someone that comes in at 15% of the appraised value.
Hi Make sure the asseser is pro you. and be very careful of overun on cost and completion time. You need to have a very good contract. Dont forget the builder can allways go out of business. Tom
Hi,
This is one of the strategies I am following, and I am convinced that it will work. It sounds like you are in an even stronger position than I am, but you haven't done your learning curve yet. Here's what I would suggest:
Look for a lot you can build on at a fire sale price (if possible). Get creative -- look for a house no one wants in a good area with an extra lot, or one that you can sell and keep the lot for little out of the total sale price. I found two lots where the owner was facing IRS judgements. Make sure your lot costs NO MORE than 20% of the value of the house you will build when you sell it.
You have to work backwards on this. Step one is what kind of house will sell for what price EXACTLY. Ask 3 very good realtors who sell in that neighborhood/city. Don't go with your buddy who's never done new construction, look for the big dogs who rule the town. Your money is as green as anyone else's, so get the best.
Then, build exactly what they tell you to build. I would encourage you to get the courses (they are cheap but very chock full of this vital info) on home building from www.homebuilderinstitute.com. Tom is local and has built hundreds of homes, learning the hard way what to do and not do. This has to become a passion of yours and you have to become the one who is telling the builder what you will do and not do, not vice versa.
Get the course on Building a Quality Home and How to Build a House When you're Broke and anything else he offers. It's strictly useful, nuts and bolts, formulas for a winner and loser home building program.
Then go to the bank and take out a construction loan FOR YOURSELF. Keep in mind that it is an option for you to live in the houes (what if yours burned down while you were building?). This is the cheapest construction money and the best way to get started.
Then shop for a builder, the courses tell you what to look for (if you're too cheap to buy them just forget it and go do rehabs yourself the hard way). You want to pay about 12-15% over cost to a builder, or BE THE BUILDER. He tells you how to do it. Then you are working for yourself.
You need to know all the suppliers, outlet window places, everything about building supplies in your area. You get this knowledge by shopping your plans from door to door. Everyone will teach you something. If you are humble and appreciative, they will teach you.
Shop for subs, this is vital.
Follow the guidelines for figuring if this will work financially, and yes, you will pay closing costs and carrying costs, but they will come out of the construction loan itself, not your pocket.
If you don't want to do it yourself, stick with a builder you trust, after you see his projects and talk with several customers.
Anyway, I wish you well and (can you tell?) HIGHLY recommend getting Tom's material if you ever thought of building your dream home or building for profit.
Happy New Year!
Shelly B. in Kennesaw GA
Shelley:
Great post.
Many people on this thread see the potential for profits in building, but sometimes overlook the large number of details that go into a deal.
Good show!
-J
Thanks for all of the great information! Looks like I have some homework to do.
Couple more questions- how do you market your newly built homes? Are you a realtor? Do you do as a FSBO?
Appreciate the help.