With real estate on the upswing in most parts of the country – and certainly in Hawaii – there is a lot of flipping going on. You know flipping, don’t you? That’s where one person (or a group) buys a house, does a little impressive remodeling, then immediately sells it for a nice profit.
To be a flipper, you have to know how to evaluate a home’s potential for value gain after fix-up, and you need the resources necessary to carry the project for both the remodeling time and the marketing time. It can be an excellent business that often pays big rewards. For example, consider a $400,000 condo built in the mid-80s with little updating since. The flipper might offer $340,000 cash for it, invest $30,000 on remodeling, and sell it for$425,000 – a profit of $55,000 that likely occurred in a 4 – 6 month period.
But, flipping certainly isn’t fool proof. Some flips simply flop. Perhaps the condo has defects that are not easily spotted that must be remedied. Perhaps the HOA has strong restrictions about how remodels are handled, adding cost. Maybe, even after remodeling, the house won’t appraise for the higher value. Like all investing, flipping comes with risk.
But the question you probably have at this moment has nothing to do with flipper at all. It has to do with the flippee: why in the world would a person with a home worth $400,000 take $320,000 for it and walk away from that big piece of equity?
The alternative would be to put it on the market for $400,000 and then just sell it! But then you have to allow for commission, which would be about $24,000 if an ordinary broker is employed. Of course, at Help-U-Sell Honolulu Properties, we charge much less: $18,250 less, to be exact! Our fee to sell a $400,000 condo is just $5,750.
But back to our example: let’s deduct $24,000 from the price for commission and, since the house is clearly in need of some work, let’s allow $10,000 for that. And, since the price puts it in the range most cash poor first time buyers would consider, we probably ought to plan on paying some closing costs. Let’s allow $6,000 for that. Now, that $400,000 price will really mean $360,000 – and that’s IF we get a full price offer! Dollar for dollar that Flipper’s offer is just $20,000 less and requires no pre-marketing prep, no repairs, no open houses, no inconvenience, nothing! Basically, you’re handed your cash in about 30 days and you’re done!
Though it is still a rare home owner who will agree to a flipper’s terms, some are choosing this option. It all depends on your goals and what’s important to you. Of course, Help-U-Sell Honolulu Properties might make the difference for some sellers. If we handled the marketing on that $400,000 condo for just $5,750 . . . suddenly the gap between the flipper’s offer and selling it outright is bigger: almost $40,000 – and that’s enough to offset any level of ease and convenience the flip offer brings.
If you are approached by an investor who wants to flip your house and you are uncertain what’s best for you, call us. We’d be happy to discuss your situation, review your options and help you make a good decision.