Rehabbing a Home: How to Flip Homes in a Downturned Economy

Everyone knows the difficulty that a down turned economy poses on the housing market. Not only is this a bad situation for homeowners, but it's also rough on real estate investors who had been profiting in a boom market and now don't know what to do.

The key to getting back on track boils down to the right education. When the housing market was exploding it was easy to find any house, fix it up, and make at least some profit. What now though? Well, it is pretty much the same thing, but it takes finding the right inventory of homes and matching it to the right buyers.

So what is the best place to find a home to rehab? Bottom line, it is foreclosed homes. Not homes that are in the foreclosure process now, but homes that are REO's or bank owned homes. These homes have gone through the entire process and are just sitting on the bank's books waiting to be cleared.

Bank's are eager to rid themselves of these homes because their main function is to be a lending institution, not a property management group. Thus, the banks are willing to let these properties go at a severely discounted price. You can buy homes that are sometimes as low as 10 cents on the dollar! Be wary, though, because 1) many of these homes need significant rehab (more than $20,000) and 2) values in some areas are still dropping.

You need to be absolutely aware of the property's after repaired value as well. If you calculate this wrong, the whole thing is moot. You may make some profit, but not the kind of profit you were looking for. Assuming you've found a good REO property to fix up, it's time to find a buyer.

Really what you are looking to do with the property is 1) sell it to a retail buyer, 2) rent it and then sell it to another investor, or 3) rent it out yourself. It's always best to consider all three exit strategies just in case, but the most instantly profitable is to sell it to a retail buyer.

Currently, though, the only retail buyers able to buy homes are first time home buyers who can qualify for FHA loans or buyers who can put down 20% or more. Although this limits your buyers some, there are a large number of people who are currently renters who don't realize that they could qualify for an FHA loan and pay the same or less what they are renting now. Plus, there is a tax credit until the end of 2009 of $8,000 for first time homebuyers, that makes any home that much more attractive.

So, now that you've found your home and your buyer, you can make profit. During the rehab, don't go crazy, but make it so that it would be attractive to a first time buyer. It is sometimes a stressful process, but one that can ultimately help make you some serious money!