TheHomeMap

Flip the House? Well not exactly, but similar opportunity for home buyers!

I once heard all the money in Real Estate is made when you buy it. At first I didn't understand this statement, as clearly people cash out when they sell real estate at a profit. As I learned more about real estate, it became clear to me that the moment of purchase is the most critical financial moment in the life span of owning real estate. If you overpay for a home or buy in a deteriorating neighborhood you could start day 1 as a home owner with negative equity and will have some recovery to do before there is one cent of capital gain. If this same home is in an area with low rental prospects (or low rent amounts) your financial options are limited should you ever need to relocate or downsize/upsize. As opposed to someone who buy's below market value, or in a neighborhood with high demand for rentals, not only do you have equity as a cushion, there are more options available when it comes to converting an existing home into a rental if selling doesn't make sense.

Over the last 5 years many people saw the shows about "flipping" homes and sat their dreaming at the end of each episode of the possibility of making $50-$400 thousand dollars in a month. Many amateurs went out looking for any fixer they could find and for many people the "Dream" ended in disaster. If you compare the episodes where the home flipper ended in the green (at a profit) and those where the investor ended in the red, the key distinction could be made at the moment of purchase and the basic math used (or lack of it.) Those that bought the home at enough of a discount to account for repairs + acquisition costs + finance costs + resale expenses and still had room for miscellaneous expenses with a good profit margin ended up doing great while those who bought based on the "potential" they saw in the home rather than the financial viability of the project ended up walking away without a profit (if not a major loss.)

Something can be learned from those shows, it pays to take a moment and run the numbers before getting emotionally invested into the idea of owning a home. Buying a home can be a very wise financial move, but getting a great deal, being careful and creating some equity, can exponentially multiply the chances of the purchase becoming a great financial move. Unfortunately, people aren't just giving away homes at a discount. The term "market rate" exists for a reason, that is the price the market is willing to pay for an average home in the area. So unless you are privy to some great information, the chances of walking into a home full of equity are very slim. This is true especially with the purchase of an average - above average home, someone else has already invested the resources to get "top dollar" for the home and it leaves little room for a buyer to make a profit at the point of purchase as well.

However, it is possible in today's marketto get a great deal with room for some equity building right away. With a little bit of vision, some critical knowledge, patience and a vigilant eye great deals can be created in today's market. In addition to "all the money in real estate is made when you buy it," I have also heard "it's smart to want the lowest priced home in a nice neighborhood, not the nicest home in a low priced neighborhood." Another phrase is "location, location, location." One may ask where these low priced homes, in great neighborhoods or locations can be found? The answer, in fixer upper homes. I know that many people don't want to lift a finger with painting a home nor do they want to spend a day ripping out orange carpet. It is not commonly known that there are loan programs available that allow you to finance the repairs made by a contractor (or yourself) into the purchase price of a home.

An example of this is the FHA 203k rehab loan. You could purchase a home that needs a little help for below market value and finance the repairs. If the comparable sales are more than the acquisition amount (purchase price + repairs) then you could be setting yourself up to walk into some equity, as well as giving yourself the opportunity to select things like paint, carpet, cabinets and more. In essence, it's like buying a "used" house with the "new" home experience of choosing flooring, colors, cabinets, etc.

This strategy does require patience and a good Realtor. It is not easy to actually get an accepted offer when you are competing against the same investors who are out there looking to flip the homes and make a quick profit (who happen to have large downpayments and cash.) However, with perserverance, preparation (being pre-approved in advance) and knowing what you want (and pulling the trigger when you find it) there are great deals to be had.

For more information on the FHA 203k loan in California please contact me at Rafael@theHomeMap.com or I can be reached at (619)928-0128.

Standard FHA guidelines do apply, 620 FICO minimum, 3.5% down payment of acquisition cost (purchase price + repairs.) Subject to underwriting approval of qualified buyers. Certain restrictions apply. Rafael Perez is a licnesed loan originator with imortgage, licensed by the California Department of Corporations 4130969 .