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