Flipping Properties for Cash Profit
by Bill Bronchick
Real estate, like any other commodity, is bought and sold every day of the week.
Many people become real estate agents because they know a small piece of a large
pie means big bucks. Agents help facilitate a sale by finding a willing buyer
for a willing seller, earning a commission of approximately four to seven
percent of the sales price for making the deal happen.
It is relatively simple to get a real estate license, and it is a lucrative
field for many people. However, as you may expect, there is strong competition
among agents, and the ones that are successful work long, hard hours. In fact,
most agents are on call weekends and nights, with their cell phones glued to
their ears. Furthermore, real estate agents are required to take continuing
education classes and follow strict guidelines set forth by bureaucratic
agencies. There are better ways for an "entrepreneur" to make a living!
The Flipper
Investors that "flip" houses accomplish the same basic task that real estate
agents accomplish. Specifically, the "flipper" investor buys real estate with
the intention of immediate resale for profit. As a flipper, he buys properties
at substantially less than the going or "retail" rate. He acts as both principal
and middleman, buying at one price, then reselling at a higher price. If a deal
is marginal (not much profit) and he adds no value to the property, the
flipper's profit is commensurate to that of a real estate agent. However, unlike
an agent, the flipper may only have a few hours of his time tied up in the deal.
Furthermore, the flipper's upside profit potential is much higher than an
agent's commission, since an occasional bargain purchase can bring a tremendous
return.
The flipper does not need a license to practice, nor is he under the oppression
of a government agency. He benefits from low overhead, flexible work hours and
he doesn't have to drive a Mercedes to be taken seriously (although he can
certainly afford one).
Three Different Types of Flippers
There are three different types of flipper investors, usually based upon
experience:
- The Scout
- The Dealer
- The Retailer
The Scout
The Scout is an information gatherer. He is the "bird dog" who finds potential
deals and sells the information to other investors. Many people get started as a
Scout for other investors because it does not take any cash or prior knowledge
to look for distressed properties. The Scout finds a property for sale, gathers
the necessary information, and then provides this information to investors for a
fee. The fee will vary depending on the price of the property and the profit
potential. The Scout can expect to make five hundred to one thousand dollars
each time he provides information that leads to a purchase by another investor.
The Dealer
The Dealer, like the Scout, locates deals for other investors. He locates a
bargain property and signs a purchase contract with the owner. He then has the
option of closing on the property and selling it outright, or just selling his
contract to another investor. He is providing more than just information; he is
controlling the property with a binding purchase contract. The Dealer often puts
up earnest money to secure the deal, so he assumes more risk than the Scout
does. Since the Dealer controls the property with a purchase contract, he has
greater profit potential than the Scout does.
Dealers can flip as many deals as they can find. On a full-time basis, a Dealer
can make well over fifteen thousand dollars a month without ever fixing a
property or dealing with a tenant. On a part-time basis, a dealer could easily
make an extra three thousand dollars a month flipping a property or two. The
dealer's lifestyle is that of a true "entrepreneur." He can work as much or as
little as he likes, with no boss, no employees and the freedom to do as he
pleases!
The Retailer
The Retailer usually buys properties from a Dealer or with the assistance of a
real estate agent or Scout. The Retailer's goal is to fix up the property so he
can sell it for full retail price to an owner-occupant. Compared to other
flippers, the Retailer puts up the most money, has the most risk and stands to
make the largest profit on each deal. However, it may take the Retailer months
to realize his profit, unlike the Scout or Dealer who makes his money in a
matter or days or weeks.
Bio:
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney,
author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real
estate since 1990, having been involved in over 600 transactions. He has
appeared as a guest on numerous radio and television talk shows including CNBC
Power Lunch. He has been featured in Who's Who in American Business, Money
Magazine, the Los Angeles Times and the Denver Business Journal. William
Bronchick has served as President of the Colorado Association of Real Estate
Investors since 1996.