Making Money Flipping Houses In St Petersburg And Clearwater

Dated: September 21 2015

Views: 120

There are a number of ways to make money, both as a long term investment and short term gain in the Pinellas County market, and I'm here to tell you how to do so.

1. Flipping houses - Buying a house, fixing it up or dressing it up, and selling it for more than you bought it for. Sounds easy right?! John Smith wants to buy 123 Main St for $100,000 and put $20,000 into it. John can sell for $200,000 according to recent comps sold in the area. John can make $80,000, right!?...

You must take into consideration ALL of your expenses. 

The part of the story you didn't hear was that John, as the seller, has to pay the commission of 7% (3.5% to the Buyer's Agent and 3.5% to the Listing Agent.)

The 7% commission cost John $14,000. Now his profit is at $66,000

Next, John has Seller-designated closing costs of about 2% of the purchase price for title insurance policy, documentation/deed stamps, and the past 9 months of taxes (taxes in FL are due in arrears) costing him an additional $4,000.

These two costs together are termed appropriately, "Cost of Sale". John's Cost of Sale or COS totaled $18,000. Leaving his profit at $62,000. Still, a great closing for John!

Luckily, John is a cash buyer so he doesn't have any holding costs other than a few months worth of utilities amounting to $600.

Financed buyers (often at high interest rates using a hard money lender) must also consider holding costs in terms of interest.

He also has to look long and hard at his $20,000 for fix-ups. Budgets need to be conservative and account for unexpected expenses.

Many "Flippers" go out of business because they underestimate the cost of repairs, overspend on fix-ups, and think the more money they put into the house, the more they'll get for it. To an extent, the money spent on the house will make the return greater, however, there is a definite stopping point, a ceiling where the home's value CAN'T grow. Comps in the neighborhood is that ceiling.

2. Income property - Buying a house with a tenant in place or a vacant property that can be rented out at a certain dollar-amount-to-investment ratio.

Income properties can also be "flips" you just don't want to spend quite as much on a rental as you do a home for resale. We call this type of flip getting it "rent-ready". Leave out the custom cabinets, granite counters, stainless appliances, and hardwood floors in place of less expensive alternatives.

The income/investment ratio is fairly easy to calculate. The ultimate goal is cash-flow and paying off the house as soon as possible so cashflow is even greater. 

The goal is to be able to pay off the initial investment in 10-12 years if it's a cash deal, and to cash flow $200/month if it's financed. It's that easy.

Here's a real life example:

Kurt buys an income property for $110,000. There are two houses on the same lot with a separate 2 car garage.

Kurt's monthly payment on the mortgage, including taxes and insurance (PITI), is  $800 (and I think that's high).

Kurt can rent each house for $750/month and the garage for an additional $150/month. His monthly gross income is $1650/month! 

Kurt is cash-flowing $850/month before repairs and standard maintenance costs! Kurt has made a very good investment.

Let's say Kurt paid cash for the property. $110,000. Kurt nets about $18,000 annually (after considering some repairs) and will pay for the house in just 6 years and 2 months!

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