A home in pre-foreclosure is the ideal opportunity for an investor looking for a house to flip. During this stage, the homeowner has defaulted on one or several of his payments but the bank has not taken control of the property yet. During this stage, a homeowner in financial trouble is often willing to sell the home at a fraction of its actual value just to get out from under the payments and gain some fast cash. When a home is in pre-foreclosure, both the investor and the homeowner can benefit.
The key to making the most of your home flipping opportunity will lie in your ability to predict how much money it will take to get the home ready for the resale market. Before jumping into home flipping, be sure to do your homework first. Some of the first steps include the following:
• Know the value of the neighborhood. The deal may look great, but before you invest, be sure the area itself has value. Take the time to study the other homes in the immediate area to see what they have sold for.
• Sometimes there is just too much work to be done. An ideal house flip is going to involve cosmetic work only. Paint, yard work and even new flooring are reasonable and expected expenses. If the house is seriously in need of a new roof, plumbing or electrical work, you should get a professional estimate before investing.
• Time is of the essence. The more work that needs to be done, the longer it will take to make a profit. If you financed the home, then every passing month eats into your direct profits. Try to purchase a home that you can repair within two weeks and immediately put it on the market.
• Figure in all of your costs. Aside from the repair work, there will be other fees to take into consideration such as the cost of the appraiser, home inspection fees, real estate agent, etc. It’s better to estimate high and come out with more profits than the other way around.