Finding the right opportunity isn’t everything the flipping game, in fact, it might be even more critical to plan ahead in case things go wrong. Don’t be overconfident going into your next deal. No matter how beautiful the renovations you intend to make or how splendid profit your projections look on paper, math and reality don’t always line up. When it comes to flipping, there are two classes of exit strategy: preemptive and “well that sucks,” strategies.
A preemptive exit strategy involves you getting out of a deal before you begin the project in earnest. When it comes to taking preemptive action there are two basic strategies:
Keep it Simple: in this case, you’ve lost confidence in the prospect of doing a full-blown renovation, but you still think there’s some money to be made. So keep it simple, narrow the scope of work, replace the carpet or give the interior a fresh paint job. Then you sell the house for a little less money to a prospective buyer.
Wholesaling: Basically you leave the house untouched, you don’t do any work, and you sell the house back to another real estate investor. Whatever preemptive strategy you choose you need to ensure the sale price can pay-off the remaining balance of your loan.
The worst-case scenario is that you’ve already gone full bore into a project, completed renovations and…
Your once shambolic home is now full of snappy furniture and shiny finishes, but no one is buying. The open door creaks in the wind and the cookie plates go unconsumed at every open house. All the while the home sits unsold and you are paying real estate commissions and the cost of carrying your loan. There are two basic things you can do in this case:
Rent it: You find someone who is willing to pay for the privilege of living in your home every month. Of course, if you go for this option, that high-interest short-term loan you took out the flip house in the first place might be too expensive. The rent you charge must at least equal your loan payments. If not you might need to refinance,
But if you can’t refinance you might have to,
Eat it: You keep lowering the list price until someone takes the house off your hands. Hopefully, in the end, you’ll breathe a sigh of relief, you might not have made a profit but at least the final sale price paid for the loan. But this won’t always be the case, you might just have to eat the difference between the final sale price and the outstanding loan balance. But this better than going into default.
So how do you avoid eating it? Don’t just waltz wistfully into every opportunity, hold off a bit. If you have some uncertainty, ponder if you’ll be able to refinance if the property doesn’t sell. But if you regularly flip houses, sometimes you will simply have to eat it.
Level 4 Funding LLC
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Arizona Tel: (623) 582-4444
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Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.