Had one of my Investor customers call me last week wanting advice. He has a $30,000 deposit on a house that will be completed next month. At that time he must come up with another $50,000 to close. He bought this house with the sole intention of “Flipping” it for a profit. Thankfully I wasn’t the one who sold him this house. He made the mistake of getting in on this subdivision to late in the game. He also bought the largest model in the community. Never a good thing.
I pulled up the community of about 600 homes and found almost 100 active listings 1 pending and only 7 sales since January 1st. Needless to say he has a problem. He can afford to close but he can’t afford the payments and the rentals in this area will leave him with almost a $1,500 per month negative cash flow. So what are his options? The way I see it if he closes he is going to be throwing good money after bad. If he doesn’t close he will lose his $30,000. A very difficult position to be in. In my area I am expecting to get a lot of these calls over the next few months. The Realtor that sold him the houses loses, the builder loses, the mortgage company loses, the Investor loses and the subdivision loses. The only “winner” in this case is the infomercial guy who sold the “Can’t lose get rich quick in real estate or die trying six weeks to becoming a millionaire information pack available on cd or cassette tape guaranteed to work or your money back we promise” scheme.
Just another example of how investing in real estate is a serious business. The experienced Investors that I work with rarely sell anything. They make their money going in, cover the mortgage by the rent and wait. Flipping is great when it works and can wipe you out when it doesn’t. So, has your “flip flopped?”