Flipping Your First Property For a HUGE Profit

21 Mar

In this series we’re learning How to Go From $0 to $10,000 a Month as a Real Estate Investor. This is part 6 of a 10 part series.

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Flipping Properties For Large Profits

Flipping Your First Property

Today we’re going to make some money, your going to “flip your 1st property”, what do I mean by “flip” you ask?  There are two methods for flipping properties, wholesale and retail.  When flipping retail there’s a lot involved including the buyer getting conventional financing which requires title seasoning.  Also a lot of the properties that you’ll be examining are in tough shape.  I like to focus on flipping wholesale for several reasons.

1. You’re dealing with professional investors 

2. You can build a relationship with the investor which means repeat business

3. A quick sale, a wholesale investor will use hard money to purchase the property so the sale will be with in days

The wholesale investor will buy the property from you, renovate the property and sell it retail.  We buy properties all the time from wholesalers; they get them under contract from the bank and do exactly what we’re discussing. At Fortress Investments we purchase properties, renovate them and sell the properties with a tenant in place at a wholesale price, leaving 25% equity.  We structure the financing in a way that reduces the down payment for the investor to only $7,500 total out of pocket. For us to deliver these types of deals we have to buy at a very good price, we don’t make a lot on each deal but we do volume, 5–10 properties a month. 

Just find an investors like us who buy properties on a regular basis, I discussed how to find these investors in the 3rd post in this series called 5 Must Have Members of your Real Estate Investment Team.

Now that you’re officially in escrow your inspection period starts, have your realtor take you to the house for a physical inspection.  Bring your camera and take pictures of everything, I usually get roughly 20–30 pictures of a house we’re buying.  Upload these pictures to Picasa and call your investor friends and tell them about the smokin deal you’ve just tied up.  Email them the price along with the link to the Picasa wed album.  Put the property on CraigsList, this will help you find more investors in your area, the terms you are going to request are as follows:

1. Cash Sale with a 10 Day Close

2. $2,000 EMD (Earnest Money Deposit) Non Refundable

3. Buying in “as is” condition

4. Escrow Company to Be Your Choice (Use the same title company that’s holding the first contract)

When you have an investor that wants to purchase the property use a blank contract provided by your real estate agent to write up the deal, you should be fairly comfortable with the process from the 10 contract you previous signed with your agent. Open escrow at the same escrow company that’s holding the first contract and let the escrow agent know you plan on doing a “double escrow”.  The escrow agent will know exactly what this means.

Flipping-PropertyNow let’s use the example we discussed in the last article Locking in a $15K Profit on your Very 1st Deal, we’re in contract with the bank for $125,000 and we’re offering it to the investor for $140,000 assuming the value of the property is $200,000.  This will give the fix and flip investor room for a profit and put $15,000 in your pocket.  A true “win – win”.

Your investor will have a $2,000 non refundable deposit and will most likely move to closing. The investor will fund the 1st leg of the transaction of $140,000 and the escrow agent will fund the 2nd leg, your contract for $125,000 and then cut you a check for the difference between the $140,000 and the $125,000 which is a whopping $15,000, Congratulations, you completed your first deal and made $15K!!.

You’ll get better at this and more comfortable, don’t quit if the investor backs out or if something goes wrong just persist.

This method works and works well. We’re closing a deal on Monday that we’re buying from a wholesaler, he got the property under contract from the bank and is selling it to us. It’s taking us a week to close the deal and he’ll make roughly $10k.  No bad for a couple weeks work and no risk….don’t you say.

In the next article we’re going to discuss how to build Momentum, I’ll share with you how to scale your business allowing you to do 3–5 deals a month.

To follow along with this series make sure you subscribe to our RSS feed or bookmark us.

If you’ve had an experience using this method please share your story by leaving a comment below.

Happy Investing 

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9 Responses to “Flipping Your First Property For a HUGE Profit”

  1. Jordan 22. Mar, 2009 at 9:52 pm #

    Hey Sean,

    Just curious if you could enlighten us as the tax rules on such a quick deal like this. If I am not mistaken, the tax for this $15,000 profit would be greater than the 15% usually associated with a property held for at least a year (assuming no 1031 is done)? I say this because if you were to carry out 3-5 of these deals a month, that would be a substantial number one would have to consider when doing the numbers. I understand you’re not in the profession of tax/legal services, but is there a certain strategy you have in regards to sheltering such enormous/quick profits. As always, thanks for the help Sean!

    -Jordan

  2. Sean Terry 22. Mar, 2009 at 10:23 pm #

    Hey Jordan, you’re right I’m not a tax professional so any advice I give please consult with you account. That being said an individual would be taxed as a “real estate dealer” in this case which result in ordinary income…ouch.

    In the series on How to go from $0 to $10,000 a Month I’ll cover how to build a large property portfolio, when doing this the long term buy and hold property write offs will offset some of the flip income.

    I can tell you I’ve never focused on the taxes, we hire the best accounts and they structure our deals to legally protect the most amount of money they can. One tip I can give is have a separate LLC for the” flip deals” and for the “buy and hold” and then make it a goal to pay one million in taxes.

    Great question by the way!!!
    thanks,
    Sean

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