Flipping house in hot market-Miat

 

I invented a 3-year flipping rule a while ago after learningfrom the lessons in past flipping experience from many people. The key mistakesflippers made failure to exit in time to avoid the market down turn. A lot ofpeople started to flip in 2003, failed to stop by 2005, then by 2006, they allgot bagged in...

Countless flippers are now holding high-priced condos along the coast in Florida,can't sell them and can't rent them high enough to cover the mortgage.

Following 3-year rule can potentially avoid such mishaps.

1) Identify the start of the market boom. It may take 1 or 2 years to ascertainthe real trend. The margin of error of 2 years will be fine because usually aboom will last 5 years.
2) Once the boom is identified, start flipping in year 1 or year 2,
3) By year 4 or 5, strictly follow the rule to sell all flipping houses. Noemotion attached! No matter how great the market still looks by year 4 or 5,dump the houses, and reap the profit.

This rule is not a pure science, but a mental guideline for myself and whoeverunderstands to follow. The primary benefit of following 3-year flipping rule isavoid ourselves to be carried away by a market frenzy.

I believe this 3-year rule can be applied to any booming market. It could beused for stock trading as well, although I am no expert in stock, I don't wantto say it would work for stock for sure.

The drawback of this strategy is that you may not be able to reap the entire100% of the gain for these 5 year. But that's okay, one can't be too greedyanyway, reaping 60% of the gain for a cycle shall be good enough for us.

 

BTW, flipping is a separate strategy from your long term buyand hold strategy. These two strategies can be exercised at the same time. Youtreat your long term buy and hold properties differently. Your long term holdproperties are those that already made even or positive cash flow and havingbuilt up equity in them. They are meant to be hold and rented out for the longterm.

On the other hand, flipping is like icing on the cakes, they do flipping tosupercharge your regular long term investing. Any flipping profit shall betreated as extra bonus, but not a necessity. This thought will give you ahealthy mindset to avoid being too greedy.

 

1)Watch for local inventory. Ifinventory has a trend to go down, a good sign.
2) Watch for ease of sales and speed of sell. If they start to sell morequickly, a good sign.
3) Talk to real estate agents to get their feeling. Are they happy? If you seesmiles on their face, a good sign.
4) Of course, you can look at all the reports on the web looking for clues.Identifying a new boom trend should not be very hard.
5) Allow yourself at least 6 month or a year to determine the trend, just toensure that the trend is certain.
6) I would also personally visit new home builders' sales offices, see if thereare long waiting lists, lottery plan or any lines to buy houses. I will talk tosalesmen and women to gauge their sentiments.

Where to flip? Flip new constructions and pre-constructions, they are theeasiest and with least risks.

6-8 months a flip, you can flipmore than one builders. I heard people sign up 5 pre-constuct leases, and flipthem at the same time. When the market is starting to boom, the risk is verysmall.

What is exit strategy? If you got it wrong, the market starts to drop while youhold the lot, simply walk away from the deal. The biggest loss is your deposit,not too bad...

 

How to find Pre-Construction home:Here is the preconstruction release mechanism.

 

Condo project often requirespre-construction release phase. They require pre-construction sales to get theconstruction loan approval from banks. In pre-const phase, they can let youlock in a price that's about 20% below market price. By the time pre-constphase is over, you flip it to new buyer, you are guaranteed for at least 20%profit. It could be a lot more depending on how hot the market at thattime.

 

Another way is to join apre-construction club:

search "Pre-constructionclub" in google, you will find them...

 

Usually, builders need to organizepre-construction sales to get their units at least 20% sold on paper. Forexample, a 300 units condo project should have at least 60 people signed up.Then bank will look at this and approve the builder for construction loan. Thisis a required process for most builders. Builders love pre-constructionflippers like your parents see you come home..., builders love you. But you doneed to know the information when the builder start to pre-construction release.Timing and information is important.

Even today, in places like Chicago,there are couple of projects offering pre-construction sales, but since themarket is bad, it makes no sense to join. You better spend time finding builderauction sales or simply hard-negotiate with builders on quick delivery houses,you often get 20-30% discount that way.

No, today is not a good time to flip at all. Today is a good time to learn theskill for future use.