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Three Steps to the Ultimate Short-term Real Estate Investment Strategy

Three Steps to the Ultimate Short-term Real Estate Investment Strategy

If you are interested in investing in short-term real estate but you’re trying to avoid the hassles of the traditional fix and flip method, then wholesaling real estate properties may be the best approach for you. Also called “contract flipping”, the investor enters into short-term real estate contracts to buy a home or buy a condo in South Beach, and then immediately flips the home to a buyer without repairs or any remodeling.

First things first, you should start by getting your license so that you can really get the most out of each investment you make. This will also give you a better perspective on the real estate market as well as real estate transactions. Getting a real estate license doesn’t take very long, if you’re interested in learning more about how to become a realtor, we’ve written a comprehensive article that details everything you’ll need to do to get your license. You can read that article here: How To Become A Realtor In Miami

The most common buyers for a wholesale real estate deal are rental home investors.  These real estate investors know precisely what they are looking for as well as the location they want it, and more often than not, they have the money to pay cash for the homes immediately.  Here’s how it works:

Step 1 – Build Your Buyer List

In this type of real estate investment deal, your best bet is to start by establishing a list of potential buyers, even before you identify the house you are purchasing. First, you want to know that you have one or more buyers who will want a home you locate before you enter into a purchase contract. Second, the way to know that there will be ready buyers is to work with them to understand their needs and desires and then build a list of the requirements for each of your buyers.

Meet rental buyers at local real estate clubs. Research county records for repeat cash property buyers. Advertise for them. Give free seminars to attract newbie rental investors with money. Build your list, know what each wants and where. Then go to step 2.

Step 2 – Find Homes They Will Buy

Now that you know what your buyers are interested in and where they want to buy investment homes, you can concentrate on the right areas. You know the price ranges, and you need to know what homes will rent for in that area.

Based on the deal, there will typically be quite a bit of research required as well as some number crunching, but the idea is to locate motivated sellers with equity and homes that are ready to rent. Considering a mortgage if not a cash buyer, taxes, insurance, repairs and other expenses, can the home rent out for nice cash flow over those expenses?  If so, there should be a buyer on your list who will want the home.

Step 3 – Contract It, Fund It and Flip It

Contract It: Once you know the approximate price you can sell the home for, you can negotiate a purchase price that leaves a profit for you in the middle. If you can, then you sign a contract to buy and put up a small amount of earnest money, generally a few hundred dollars, to get the deal sealed on that end.

Fund It and Flip It:  There are two ways you can fund your deal without any more money out of your pocket. First, if your state allows assignment contracts, that’s how you write the purchase contract. It’s a small change that specifies you as the buyer “and/or assigns or assignees.”

This allows you to take the deal to your buyer and execute an assignment contract assigning them all of your rights and obligations under the purchase contract.  They take over the deal, and you just wait until closing to get your profit money.

If you’re not allowed legally to do assignments, check your state law. You’ll probably need a transaction lender.  Set up relationships ahead of time and these lenders will fund the first closing, as now there will be two of them. First, they fund your purchase. Then, hours or days later, they close the sale with your buyer, take their fees and give the rest to you.

Fees can be steep for this short-term money, but if there’s room for your profit as well, then it’s worth it.

Wholesaling or contract flipping can generate very high profit margins on the cash you have invested, and it’s relatively low risk if you do it properly.