These shows are now running on several cable channels.
They buy a fixer-upper, fix it up, and sell for more than they put into it.
But the final computations showing how lucrative this is never mention the huge burdens of buying and selling commissions, much less bank, excrow and sales tax where applicable.
One owner was supposed to be pleased with the process and was gamely saying he was sort of pleased with the results, but added he would not try it again without a license, as all the profits went to the agents.
Would getting a license first be the only way to go?
However, you don’t need a license to buy or sell real estate in any US state, AFAIK.
Here’s what you would get doing it on your own:
[ul][li]The full profit[/ul]Here’s what you WON’T get as a FSBO:[ul][]Any advice about the market[]Any free advertising or advice about advertising[]Any help with legal matters, code requirements, surveys, house inspections, paperwork, etc. [sup][/sup][]Use of Multiple Listing Services (MLS)[]Use of agents’ “networks”[]Assistance in preparing your house for sale[]Assistance in showings or open houses[]Assistance in negotiations[/ul]Certainly there are some circumstances where the MLS might not be a big factor to find buyers, and where a sign on the front lawn might be the major factor – that’s for you to decide. And if you want to hire an attorney to do legal paperwork, you can do that – and there goes some more of your profit.[/li]
[sup][/sup] By legal matters, etc., I don’t mean that an agent is a substitute for an attorney. But we agents (at least in my state) are empowered to perform quasi-legal functions based on approved forms, which is all most transactions need. We are required to refer our clients to an attorney for more complex matters or ones not covered by the forms. We also cannot provide surveying or inspections, etc., of course, but we can point a client in the right direction and suggest some actions that they should take to protect their interests. And “looking out for your interests” might be the best overall description of our job, and why we are hired.
Sorry, According to Pliny, I veered off from your OP, which I now see was more of a “should I get a license myself before trying to flip a property?”
Although I thought you were considering hiring an agent as one option.
And a better answer to the OP would be, it’s a help, as you will get some training in the matters I discussed above. However, the training is minimal, and experience working as an agent might be even better and more valuable.
So no, you don’t need a license, but either you want to hire someone who has one or go thru the learning process or else you’re approaching this pretty cold. But if you have past experience in the building or real estate trade, that can compensate.
What are commissions where this guy flipped his house?
Quick googling shows numbers between 3 and 7 percent coming up.
Let’s assume 5.
If you get a $200K house at a 50% discount, dump $20K into repairs and sell it for $200K, you’re looking at:
COSTS:
Wholesale “deal” price - $100K
Agent commission on “wholesale” purchase - $5K
Repairs/improvements - $20K
Agent commission on “retail” purchase - $10K
INCOME:
Retail Sale $200K
Flipper PROFIT: $65000
Real Estate Agent Profit: $15K
Well, looks like your flipper could save a substantial amount of money getting his real estate license, even if he wound up splitting half of the fees with a buyer’s/seller’s agent.
Depending on how long the license takes to get, I’d certainly consider getting mine, were I in this individual’s shoes.
The real issue, in my mind, is what the realtor does to earn their money. A good realtor knows the market, which helps them know what price the house will sell for and the best way to find a buyer quickly.
Time is money, especially if you’re looking to flip. The key figure missing from Mr. Slant’s breakdown is the monthly mortgage (and tax) payments. If it takes you four months to sell the house, those payments can eat up the profit pretty quickly.
Another pitfall to this activity is how liable you are for the ‘fixing up’ part. I work for the agency that pursues unlicensed contracting activity. My knowledged is limited to the state I work in, so YMMV but if you’re pursuing the activity for profit, it’s easy to cross the line into criminal activity. Especially if you’ve never occupied the house as your own residence, and someone complains about the workmanship within a year. (Statute of Limitation) So make sure that anything you do can pass muster for at least a year.
To be completely aboveboard, if a job (labor + material) is over $1000, or if the local building department requires a building permit, it should be done by a licensed contractor.
Again, it may be different where you are. Civil Liability is a whole kettle of horses of different colors.
Not sure about the UK, but real estate brokers are required to be licensed in the US.
A lot of people grumble that they think these folks aren’t necessary for the process, and maybe for some that’s true. Some people don’t need an electrician to install a circuit breaker, or a mechanic to fix their brakes. If you can do those things yourself, then hiring a professional probably doesn’t make sense. If you’ve never done those things before, plodding through on your own might not make as much sense. Same goes for real estate.
I’ve bought/sold a house six times since 1999, always with an agent. Some definitely earned their money, and a couple did nothing that was helpful.
You could say this, but whenever a seller pays, a buyer pays.
Money doesn’t come from nowhere. If there were no brokering, the consumer would have more purchasing power and the seller would be able to get more for the product.
My bad for missing that.
I wouldn’t consider buying investment property on credit, so I didn’t factor it in.
I should have factored in the opportunity cost of the capital tied up, because even if you do this stuff with all due haste, it can take a few months for a buyer prepared to pay true market value to come along.
Based on folks I know who flip houses and my own experiences, get the license.
You need to know the market and what is available - specifically houses in need of repair in upscale or “up and coming” neighborhoods.
Commisions are significant but owners who sell without a broker can ask unreasonable amounts for their property too.
I can’t imagine it myself unless conditions were very good.
Most repairs involve much more time and money than the shows indicate. I love the shows where they install granite countertops in the kitchen for a $1000. There are some good deals out there but finding them takes time and time is money.
Not all houses sell in a day or two. There is nothing like having a couple of mortgage payments while waiting for a buyer.
Not all houses appreciate at wild rates with people trying to outbid others to get the property.
Clean-up, painting, landscaping and like is one thing. Electrical, plumbing, and structural work is another. Aside from the realtors license, it would be good to be a licensed electrician and plumber too (go for houses that need cosmetic work and avoid those needing to replumbed).
Find a house inspector you trust to make a good assessment. Take a look at the property after a heavy rain. Talk to the neighbors.
The Sonoran Lizard King is right about the liability. You’re supposed to fully disclose all problems with the property when you sell and, if you do not, you are liable for up to a year in many areas. The “rules” vary on what you can and cannot do but your work should be inspected regardless.
Last, I’d make certain the title is absolutely, 100% clear with no unresolved “problems” even if they are described as “nuisances” or problems that are expected to be resolved shortly.
On the flip side of the equation (heh) is the possibility of rental income if the time between purchase & sale is longer than 4 months. I have neighbors who have done just that; either lived in a house for a while or rented it out during remodelling (it can be timed just right, or some remodelling isn’t all that disruptive).
According To Pliny, I have some professional friends who combine the best of several occupations. They are licensed agents and they are also builders (or someone in the immediate family is). Basically, most everything is done in-house, and they can grab onto side-business as well, such as if someone buys their remodelled house, the buyer might have another house to sell and they can handle that. They have the training as well as experience. I guess in your case, it depends on just how much time & effort you want to invest in this project. It’s not trivial if you are dedicated.
And just to clear up some possible misconceptions that often crop up, a Realtor is someone who belongs to a local Board of Realtors. Realtors are required to be state licensed agents, but agents are not obligated to join any board. The benefits are great (access to MLS and an automatic offer of compensation to/from other agents in the board), but in some special cases, membership is less useful. Agents that limit their practice to selling property in just one development might not be Realtors, for example, or those that buy/sell only for their own accounts.
One of the benefits of having a licence, as I recall, is that you can buy and sell a house within a limited amount of time (6 months?) and pay sales/transfer tax only once, not on both transactions.
Not in my state. Never heard of that. Are you sure you aren’t thinking of a 1031 Starker Exchange? I’m not aware of any special provisions for licensed agents for such a transaction, but I could be wrong. I’ve handled Starkers (or the title company did it for me), but for a client’s properties, not personal purchases or sales.
In my state, at least, there is no “sales” tax on real estate. There is a transfer tax in my county of 30 cents per thousand dollars of sale price, paid to the Registrar of Deeds. I’m pretty sure the Registrar treats each transfer independently for cost purposes even if they happen simultaneously.
Whatever all the work that Realtors say they do for you, it all boils down to advertising. That’s what they do in essence. When it comes to closing, it’s the title company that does all the truly important paperwork.
So, if you got your license, it would gain you access to the MLS – there’s your most important advertising. You’re also entitled to half the commission, so you’re “losing” 3% instead of 6% by paying the buying agent his split. But consider how you really get access to the MLS – is it enough to have a license? Do you have to pay a high subscription? Do you have to pay to “work” at a place like Re/Max where you pay to share resources? At some point, all of your added time could cost more than you’re saving. If that becomes the case, it may be worth it to keep a Realtor on your side. If you have one guy that always handles your flips, he may offer you a reduced commission. Or, you could hire a general secretary to handle a lot of the details that you currently handle yourself. In the long run, paying a salary could be cheaper while you dedicate yourself to the stuff that makes the highest returns.
(Neither of the only two houses I’ve ever bought were on my buying agent’s list; they were off of the MLS. When I sold the first house, my selling agent turned it in a week after a too-long FSBO period, precisely by playing dual agent [with his fiduciary duty to me foremost, of course]).
