Without instant equity, it’s best to hold off — unless investors are willing to become a landlord, he said.
Levinrad and David Dweck, founder of the Boca Real Estate Investment Club, say flippers should buy a home for no more than 65 percent of the market value after repairs. If a house is worth $100,000 after it’s renovated, and it requires $10,000 in work, the maximum price an investor should pay is $55,000.
Dweck’s advice: Don’t skimp on renovations and save the receipts to show appraisers.
“The biggest challenge right now is appraisals,” Dweck said. “The more ammunition you have to give appraisers, the better. But there is absolutely no guarantee.”
Maher Hanna, a student of Levinrad’s seminars who started investing full-time this year, said flippers — particularly beginners — may have to be satisfied with modest profits.
“There’s a saying: Bulls make money, bears make money, but pigs gets slaughtered,” Hanna said.
- Do your own due diligence. Investors should know the true value of a house without relying solely on outside sources.
Too many novice investors take a real estate agent’s word, Levinrad said. Even appraisals may offer only a ballpark figure, he said.
The best way to determine value: Travel to the neighborhood, attend open houses and see what similar-size homes are selling for.
Also find out how many other homes in the area are listed and for what prices. Flippers should price their renovated properties slightly below market value to attract interest. That will ensure they don’t have to keep the home any longer than necessary, Levinrad said.
- Know your exit strategy. If an investor is planning to buy, renovate and resell, stick to the plan.
Some investors change course and end up regretting it. They may realize they’ll make less money on the deal than originally expected, so they hold the home and rent it instead.
But then they discover they aren’t prepared to be landlords — from the hassles of dealing with problem tenants to the high cost of maintaining the homes.
“Something that was supposed to be a profitable and enjoyable experience turns into a nightmare,” Levinrad said. “If your profit is less than you anticipated, consider it a lesson learned and move on to another property.”