Experienced fix-and-flip property rehabbers know that the starting point of every rehab project is finding a property that has not yet been listed for sale. Once a property hits the retail market, whether through listing on the MLS with a realtor or through a sale by owner, the seller of that property has established a floor price that will typically be above the amount that a rehabber should pay for the property. Hard money and real estate investment lenders will shy away from all but the most distressed listed properties. Real estate investors can develop the skills to find a good property to flip, but developing that skill set will take some time and effort.
Most investors will resort to a shotgun, broad brush approach to finding flippable properties. You have probably seen roadside, hand-written “bandit” signs with a toll-free number of a person who claims to buy any and all properties, or you might have received a letter on yellow legal paper asking you to call a number if you are thinking of selling your house. These approaches might produce an occasional fix-and-flip gem, but they require significant effort and expense. A more targeted approach will produce better results.
One targeted approach is based on the theory that a fix-and-flip real estate investor is a problem solver. The problem is that a prospective seller has real property that he or she needs to liquidate quickly and with a minimum of hassles. The most common situations in which you might see this problem will be in estate sales, divorces, or other legal proceedings. Case records for estates, divorces, and other civil matters are open for inspection by the public in county courthouses. A county might have an online, electronic system that allows you to do case research from your home computer, but more frequently you will need to go to your county courthouse and probably to your county assessor’s office to get the information you need.
Assume, for example, that your county courthouse has records of twenty new estate cases that have been filed by heirs or estate representatives over the past month. With a few hours of research, you can examine those records to determine the decedent’s most recent physical address. You can then check with your county assessor to determine whether the decedent owned the property at that address. With a bit more creative research, including visiting the property, you can determine if anyone is still living at that address or if the property is otherwise vacant.
Court case records will include the names of the estate’s heirs. Once you have satisfied yourself that the property is vacant, you can contact the heirs to express your interest in solving their problem of converting that property into cash that can be distributed among them. The heirs are more likely to accept a quick and reasonable cash offer that is below the aftermarket value of the house rather than continuing to hold the house and to pay maintenance and real estate tax costs out of the estate.
You may need the court’s approval to purchase the estate, or the estate’s administrator may need to ask the court’s permission to close the sale. In some states, you might also be forced to purchase property from an estate “as is” and without any of the standard warranties and representations that are included in real estate transactions. You will need to check with your attorney to determine how to buy the property from the estate.
This same process can be adapted to divorce proceedings in which spouses want to liquidate a property to distribute assets, and to bankruptcy proceedings in which a party is looking for cash to pay down debts. In all cases, you are solving someone else’s problem and giving that person a quick exit from a situation that would otherwise require excessive time and effort to convert real property into cash.
Once you have identified and locked in a contract on a good fix-and-flip property, you will likely need financing to complete the deal and to pay for any rehab work that you expect to do. Center Street Lending provides short-term, asset-based loans for this purpose in Arizona, California, Colorado, Washington, Utah, Texas, Florida, North Carolina, Virginia, and Georgia. Please see our website or contact us with any questions you might have or for assistance with financing your rehab projects in these states.
Center Street communications are not intended to provide business, legal, tax, investment or insurance advice. No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party. You are solely responsible for determining whether any investment, investment strategy, business strategy or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation.
