Flipping Properties In A Down Market

In a down market many investors stop investing in real estate. They complain that it is too difficult to make money and buy into the message of recession and depression being preached by the media. It is the savvy investors that recognize that investing in a down market is actually one of the best times to invest.

Robert Kiyosaki, author of the best selling "Rich Dad" book series uses the following illustration that explains this principle very well. When a retail store or a supermarket has a "sale" everybody runs there and buys. However, when assets go on "sale" everybody runs away from those assets.

Buying real estate in a down market is actually one of the best times to buy. You can secure assets at prices significantly below what they were worth when the market was doing better. If you buy correctly in many of these cases you can get the same benefits as you would have received if you purchased the property in an up market just like you get the same benefits of an item you purchase from a supermarket or retail store that is on sale.

However, buying in a down market isn’t an automatic method to make money easily. You need to have a sound strategy that is proven to work, that is effective and that is designed to help you reach your goals. One of the reasons why investors are hesitant to buy in a down market is because it can be brutal if your strategy is not sound.

In an up market, the market tends to prop up a lot of investments that aren’t sound. As the saying goes "a tide lifts all boats" and this saying also applies to real estate. Even if you make bad decisions, often you can still win because properties continue to appreciate in value.

In a down market you are unable to simply rely on appreciation. The investment strategy that you use has to be sound even if the property decreases in value. This is why many investors don’t feel they can profit in a down market. However, you can and should be able to profit in ANY market, good bad or sideways, if you are using a good strategy.

Flipping properties is a great way to make money in any type of real estate market. Many people lose money in flipping properties because they make the all too common mistake of relying on appreciation to secure the profit. Not only is this not a good idea, it’s not even necessary. There are plenty of ways to make money in real estate regardless of whether the price of the property appreciates in value or not.

Our focus in this case will be on two types of investors that engage in flipping properties. The first type is what we refer to as "wholesale" real estate investors. These are the investors that go out, find potential deals and turn the deal over to another investor to profit from. In return for there service, they receive payment from the investor for finding the deal.

The second type of investor that we will focus on is what is known as "rehab" real estate investors. These are the investors that actually take the steps necessary to get the property in a state that allows for the maximum profit to be made. In most cases, this occurs by making repairs or physical changes to the property to increase its value. However, it can also be by providing cash to a seller that is unable to wait long enough to get the maximum value for the property.

Regardless of which category of investor you fall in, you can make money flipping properties in a down market. Sometimes, you can even make more money in a down market than you can in an up market simply because there is less competition competing against you.



So how do you make money flipping properties in a down market? The first step is you must have a good system for finding potential properties. The good news is many of the systems that you can use are even more effective in a down economy than an up economy because the drag on the economy creates more opportunities.

Most investors start by looking for motivated sellers. A motivated seller is someone who needs to sell their property quickly for one or more reasons. The seller might be in pre-foreclosure, which means that he or she is behind on mortgage payments and the bank is initiating procedures to foreclose upon the house, but the house hasn’t been sold at the auction yet.

In a down economy you are going to have significantly more people in foreclosure than you are going to have in an up economy. Besides job loss, which occurs in any bad economy, this economy has the added contributor of adjustable mortgages creating rate increases. Some of these rate increases creates an increase in monthly payments as much as $1000. There are a number of people who simply cannot afford such an increase, especially if the house is no longer worth what it was when the mortgage was first taken out.

To capitalize on this, you should have a way to locate these motivated sellers and present to them your offer. One of the most effective ways is to engage in a marketing campaign. Finding properties in foreclosure and doing a direct mail campaign can be very effective. You can also advertise in a local newspaper as well as do local advertising on the search engines. Some investors even find these types of properties from the public record, drive by the property and knock on the door to see if they can speak to the homeowner directly. Regardless of which approach you decide to take, you need to have a proven strategy that allows you to alert these homeowners that you are willing to purchase their property from them and close quickly.



Once you have located potential motivated sellers and presented your offer to them, the next step is to locate the money. If you are going to be offering the property wholesale to an investor, you find the money by finding an investor to flip the property to you. If you are going to be rehabbing the property, you find the money by putting together the capital necessary to make whatever repairs are required and to cover the costs of holding the property until it is sold or rented.

Many investors that wholesale a property for the first time are intimidated by this part of the process. Finding investors to flip the property to is not difficult at all. It only becomes difficult if you are not negotiating attractive purchase prices for the properties. You need to make sure that in your offer price you leave enough profit for you to make money as well as for your investor to make money. In most cases, your investor is going to make the most money since it is your investor that will have to hold the property and put in the money necessary to get the property up to marketable condition.

If you are the investor, you may already have money in the form of your own private funds. If not, you can raise money by getting a conventional loan, getting a hard money loan or finding private investors to invest with you and put up their money to fund the deal. Make sure you raise more capital than you need. This way, if there are any unexpected expenses that come up, you won’t have to worry about running out of money and being unable to complete the deal.

The final step is to apply your profit strategy. Usually this is in the form of either selling the house on the open market or renting the house out and collecting monthly cash flow. It is a good idea to account for both scenarios. This way if something unexpected occurs that prevents you from making the profit you want using one strategy, you can switch to the other. Flipping properties and making money can be done in any economy, good or bad. The key is to buy properties below market value and cash in at a higher price than what you paid, regardless of what the market is doing.



Mike Warren is a real estate expert and trainer. To get some of Mike’s Free CD’s, reports,videos, courses and more please visit our website at http://misuniversity.com.