10 Key Steps to Buying and Flipping Distressed Properties Without Taking Advantage of Owners in Hardship
There’s plenty of interest in buying and selling distressed property. But what are the mechanics of the process? DG Institute Founder Dominique Grubisa outlines the 10 key steps to flipping houses, and explains how you can make a profit while helping the property owner solve their financial problems.
When an asset is purchased below its market value and then resold at a more appropriate price, there are substantial profits to be made.
That’s why distressed properties are so attractive to property investors. These are houses and units that have been placed on the market by vendors who are in a hurry to sell. It might be a homeowner who has defaulted on their mortgage and had their home seized by the bank. (Such distressed sales are on the rise in markets such as Western Australia.)
Or perhaps it’s a divorcing couple who are keen to be rid of each other and want the family home sold as quickly as possible so that they can get on with their lives. Or maybe property investment partners who have had a falling out.
Other possible reasons for distressed property sales include a death in the family that means mortgage payments can no longer be met, and a deceased estate being sold by the heirs. The reasons are wide and varied, but almost always involve some form of personal tragedy.
Buying and flipping houses in distress for a win-win outcome
I have been teaching people how to buy and resell distressed property for more than a decade now and my advice has always been the same. There are excellent opportunities to make a profit, but don’t be exploitative.
Try to make the transaction a win-win for you and the vendor. Instead of being the grim reaper, you can be the white knight who provides the vendor with the fast sale they need, provided you treat them with respect, are upfront and reasonable. Behave ethically.
With this is mind, here are my 10 steps to flipping a distressed property:
1. Identify potential properties. Use some of the reasons for distressed properties coming on the market (outlined above) as a starting point. Divorces, deceased estates, bankruptcies and properties that are heading into foreclosure are a great place to start.
2. Contact the owner and arrange a meeting. Find out about their situation, price requirements and reasons for selling.
3. Verify the information given to you by the homeowner. Don’t rely on what you have been told. Conduct your own investigation into factors that will affect the initial sale price and then the ultimate resale value. Conduct a thorough inspection.
4. Do the sums. Calculate the potential value of your investment. Analyse your costs and profits – what could you pay and still make an acceptable profit given your anticipated eventual sale price? None of this makes any sense unless you can make a profit.
5. Negotiate with the owner. Try to arrive at a price that works for both of you. Remember don’t be exploitative, but also keep your mind on profitability.
6. Negotiate with lenders and lawyers. You will need to secure finance. Depending on the type of sale (mortgagee in possession, etc) you are likely to be dealing with lawyers as well.
7. Negotiate a short sale and the final purchase price. You will need to set up, check, and structure a short sale for the homeowner and present it to the lender to get their approval.
8. Protect your interests. Once the deal is set, you will need to know how to protect your new property and avoid last-minute surprises.
9. Fix it up. Distressed homes sometimes only need a little TLC to become a much better sale prospect. In other cases, you may wish to carry out substantial renovations to realise an even greater profit.
10. Sell or rent it. Time your sale for maximum profit, while trying to minimise the amount of time you are paying interest on any borrowed monies. Alternatively, your plan might be to rent the property out, negatively gear any expenses and exploit capital growth.
So now you have the key steps to flipping houses in distress. The process is explained in more details on this webinar.
Students of my Real Estate Rescue program receive a range of learning materials to help them on their property journeys. These include an accelerator home study course to bring them up to speed with the distressed property market, a three-day workshop, access to monthly webinars, subscription to CoreLogic and access to our members-only deal hub. To learn more about flipping houses and other property development courses, visit dginstitute.com.au.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practicing legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at email@example.com
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.