| Flipping FSBO homes can be profitable if done | | | | homes? It is in fixer-uppers. A 10% discount |
| right. | | | | from market value may leave you breaking even |
| | | | on a straight flip, but with a fixer-upper it |
| What are FSBO homes, and can you really make | | | | just means that much more profit. Let's look |
| money flipping them? First some definitions. | | | | at an example. |
| "Flipping" refers to buying and selling real | | | | |
| estate for a profit over a short period of | | | | Flipping Fixer-Upper FSBO Homes |
| time. Some "flippers" are looking only to | | | | |
| make money from buying low and reselling | | | | Suppose you are looking at a fixer-upper. The |
| quickly, while others repair and improve or | | | | ARV, or "after repair value" will be around |
| otherwise add value to the property before | | | | $180,000, after about $25,000 in expenses for |
| selling it - an important distinction we'll | | | | buying it, repairing it, holding it and |
| get back to in a moment. | | | | selling it. Of course no one deals with a |
| | | | problem house for fun, so the market for such |
| FSBO, pronounced "fizbo" means "for sale by | | | | a house is mostly investors, who expect to |
| owner." Owners try to sell on their own | | | | make $20,000 for the risk and work involved. |
| primarily to save the cost of a real estate | | | | That puts the market value at about $135,000 |
| broker's commission. This is often a mistake, | | | | ($180,000 minus the costs and profit |
| for many reasons we won't get into. The | | | | expected). |
| bottom line is that these houses | | | | |
| statistically sell for less on average than | | | | This might be a typical fixer-upper in your |
| those sold through an agent, negating any | | | | area. But if the house happens to be for sale |
| savings. | | | | by the owner, you might do even better. Let's |
| | | | start with the assumption that the home is |
| One reason this is true is that buyers know | | | | ugly, is already priced at $135,000, and due |
| the seller is saving the commission, and are | | | | to the owners poor sale's skills (common), it |
| inclined to offer less as a result. Sellers | | | | has been on the market for six months. The |
| are open to this because they think something | | | | seller is frustrated, and when you talk to |
| like, "If the commission would have been | | | | him, he mentions that he is considering |
| $8,000 and I sell for $4,000 less, I still | | | | listing the property with a real estate |
| save $4,000." For this reason, and because | | | | agent. |
| owners often don't know how to properly price | | | | |
| a house, many new real estate investors think | | | | You point out that if he gets $133,000 - |
| that they are going to get some great deals | | | | close to his asking price - a 6% commission |
| with FSBOs. | | | | will cost him about $8,000. Furthermore, |
| | | | buyers might ask that he pay $2,000 of their |
| The opportunities to simply buy cheap FSBOs | | | | closing costs, and in three months he'll |
| and resell them for profit are just plain | | | | spend another $2,000 holding onto the |
| rare. It's true that FSBO homes often do sell | | | | property. He'll clear $121,000 - or he can |
| for less, especially after sellers get | | | | sell to you now for $122,000, close in a |
| frustrated with their poor marketing skills | | | | week, and avoid the trouble. |
| and tired of waiting month after month for a | | | | |
| buyer. But even if you buy a house for 15% | | | | Suppose he eventually agrees to $125,000. The |
| under market value, the transaction costs of | | | | other numbers didn't change. The house will |
| buying and selling it can run 10% of the | | | | still sell for $180,000 when ready. In other |
| final sale's price, and holding onto the | | | | words, you just made yourself an extra |
| property while waiting to sell can eat up the | | | | $10,000 on what was already a potentially |
| other 5%. | | | | profitable fixer upper. This is how flipping |
| | | | FSBO homes can be made to work. |
| So where is the potential for flipping FSBO | | | | |