As the owner of a Distresses Real Estate Institute in Deerfield Beach, Florida, Lex Levinrad has been getting just about as many phone calls as he can handle recently. He has been dealing with a deluge of requests from regular folks who are interested in investing in South Florida real estate now that prices are on the rise.
A lot of the local people who frequent his monthly seminars have been brushing up on the art of “flipping” homes. This of course is the act of buying property at significant discount, sprucing it up, and selling it within a few months to long-term buyers.
Guiding Future Property Investors to Success
Levinrad himself has claimed to have purchased and sold at least 500 homes since he has been in the industry. Now, he is helping other aspiring property investors learn how to work it out and where to sniff out the best deals. Of course most lessons start out with two carefully chosen words, “be careful”, since risky mistakes can bring your investment dreams crashing down all around you.
One of the mistakes that investors tend to make is spending more than their budgeted amount on the home and then get into trouble paying for the necessary repairs. This can create a downward spiral where emotional attachment is made with the house, and owners become unwilling to part ways unless they gain some sort measure of profit.
According to Mr. Levinrad, there are three golden rules that should be respected when it comes to real estate investing:
- Don’t make your purchase assuming that your property is guaranteed to increase in value. As a result of the housing boom, a lot of flippers were burned when they chose to place their futures on something called fast price appreciation. As the market inevitably start to dip, so did they.
Levinrad acquaints this with always betting big in Las Vegas.
Instead, Levinrad suggests ensuring enough of a discount that you are given instant equity in the home. By doing this, they won’t have to wait to prices rise in order to flip the home. Look to purchase a home for no more than 65 percent of the market value following repairs. So if the price of the home is $100,000 after renovated, and they invested $10,000 in repairs, flippers shouldn’t be paying more than $55,000 for the property in the first place.
- Don’t leave the due diligence up to anyone else. An investor should have the resources to determine the true value of a home without having to resort on outside sources.
Levinrad suggests not relying solely on the word of the real estate agent.
Learn their value by visiting the neighborhood in person, see what competitors are selling for, and attend any open houses. Investors should consider pricing the renovated property just under the market value in order to garner fresh interest. This should help ensure shorter downtime between properties.
- Develop a good exit strategy before you buy. After you have made a purchase, make sure you stick to this plan.
Levinrad has seen many examples where flippers got cold feet and fell of course, only to regret it later. Some find that they aren’t going to see as much revenue from the deal, opting to rent it out instead. A couple months in, they realize they weren’t prepared to deal with the struggles of being a landlord.
When it comes to flipping homes effectively, it’s obvious that Levinrad has plenty to offer, but before you spring for the pen and paper, take a second to remember one of the underlying points that were made here. You don’t want to make too many assumptions when it comes to investing in the housing market. When these basic guidelines are forgotten, Levinrad warns that what was supposed to be a positive opportunity can become a nightmare before the investors even realize it.