BANYANREIT.COM - real estate financing

"The last one, because of the market, it's just being sold (November) and I bought it in February," "The Simpsons" television show producer explained to JET. "The thing is, even though you have equity in these properties and I'm a flipper, these properties you have to get with a hard-money loan, not a conventional loan, so the interest rates are really high. Every month that you're holding on to this property, you're paying a monthly payment, which is sometimes double a conventional loan. So, time is of the essence because at some point you're going to go on the negative. This last one I could have made $35,000 on it, instead I made more like $15,000 because it took so long and all of the rates I had to pay on a monthly, it was a disaster for me."

The optimistic time frame to flip property is 90 days. This includes time for any construction and upgrades to be done. However, National Association of Realtors spokesman Walt Maloney suggests that you have enough money for at least six months reserved "in case things do not work out the way you planned."

"When the market turns, it turns quickly and people are getting burned. The people who bought within the last year, looking for fast gains, those are the people getting hurt now," Maloney observes.

Joseph Smith II, a general contractor and owner of Silverback Construction, LLC, flips in the Chicago area and rehabs his own property. He says he has been impacted by the market's change this year.

"The market place has become much more challenging in the typical notion of flipping. For example, I bought a property in Maywood (IL), it was a pre-foreclosure property. I purchased it for $111,000, got $5,000 back at closing and it took me four months to finish it. I added an additional room, finished the basement, new kitchen, new paint, new windows, and I was able to later sell it for $182,000. I walked away from the closing table with a $52,000 check on that 2005 project. It was nice, but you reinvest and move on to the next."

Though he has not been able to match that high-percentage success yet this year, Smith concedes that he's learned to be smarter and more patient. "It is truly better to wait six months and find the right deal than to rush and sign a questionable one. You make your money when you buy and not when you sell. Because if you don't buy the right property at the right price, you'll never make it back when you sell.

"There's a difference of what the property is valued at and what the market will pay you for it. So a lot of people say I'm going to buy this and if it doesn't quite work out, I'll do this, this and this and I'll increase the value on the back end. So again, you may increase the value, but that doesn't mean someone in the market will actually pay that. So it's really important when you purchase the property that you've done all the right homework so that all the numbers really work out--rehab costs, the operational cost--so the whole buying process has to be really on point. You have much more control and are in a better position when you're purchasing it than later on when you're trying to sell it."

California-based real estate agent Stephon Carradine agrees that the key to profit is to do your homework when you buy the property, and adds that with the right research, profitable deals are still available, even with the slow market.

"Five years ago, for example, people were looking to get properties where they could make 25 to 30 to 40 percent profit on their investment. Those days, especially in California, are no longer here," says Carradine, founder and CEO of BlackRealEstate.com. "If you're comfortable making a small, safer return of 10 to 15 percent, then you could still find those opportunities out there where that's possible. But you have to make sure you buy it at the right price and factor the holding cost--in other words, if it takes you three to four months to sell it, you have to factor what that payment is looking like and take it away from your profit."

While the housing market has become a playground for more Blacks, Lynn Richardson, JP Morgan Chase vice president of national strategic partnerships, warns to not take the practice lightly. "People should take advantage of the education out here on real estate investing; it's not as simple as watching a commercial at 2 in the morning and thinking you're going to get rich. Real estate investing is either a part-time, or for many, a full-time job. It requires research, it requires planning, it requires a certified mortgage professional ... because flipping property isn't necessarily the way for everybody."

Do's and Don'ts of Flipping

While flipping can bring big financial rewards, experts warn that it is also very high risk.

DO: Your homework before you buy. Research a neighborhood before you invest. Check online for a home's property value and how it has or has not increased in the past 12 months. Also, calculate costs of rehabbing and operational fees and subtract that from a potential profit.

Do: Have at least six months reserved in case you are unable to sell when planned.

DO: Budget for surprises like paying back taxes, liens or second mortgages.

Don't: Overdo renovations. Putting too much money into a house can hurt your bottom line.

Don't: Rush into a deal. Property flipping is hot a hobby and you could lose a lot of money or damage your credit by signing a bad deal.

HOME SALE CHANGES FROM 2005 IN PERCENTAGE

             Northeast   Midwest   South    West

2006 - Jan      -13.2%     -3.4%    2.2%   -14.4%

2006 - Feb       +1.7      +2.5    +3.1    -10.6

2006 - Mar       +2.6      +3.8    +1.1    -12.3

2006 - Apr       -2.5      -3.1    -3.7    -13.6

2006 - May       -3.4      -5.0    -3.3    -13.5

2006 - Jun       -9.8      -6.2    -5.9    -17.1

2006 - Jul      -12.5     -10.1    -7.0    -18.0

2006 - Aug      -11.6     -11.7    -7.4    -22.8

2006 - Sep      -13.4     -13.7    -9.0    -23.8

Source: National Association of Realtors

BANYANREIT.COM - real estate financing

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