Kelle Sparta is the author ofThe Consultative Real Estate Agent: Building Relationships that Create Loyal Clients, Get More Referrals, and Increase Your Sales(AMACOM, 2005). She is also the founder of Sparta Success Systems , a real estate training company.
Create a Whole New Market for Yourself with Fix-and-Flips
What if you could earn multiple commissions on a single property sale, increase home values in your area, and perform an altruistic service for the community, all at once? Read on.
November 1, 2010
Foreclosures are everywhere and the market is unsettled. Does this mean that we don’t have a good way to create business? Certainly not!
Consider the fix-and-flip market for a moment. Now many of you are probably thinking: "Fix-and-flips? In this market? You're insane!" And in most circumstances, this would be true. But let's approach this from a different perspective for a moment. There are always people who, due to their unique circumstances, can do something that everyone else would find prohibitive. And this is true for the fix-and-flip market, too.
What if you had really cheap or free labor, reduced or nonexistent property taxes, a ready fund of cash so that you weren't paying a lot in mortgage payments, and the ability to have people live in houses that were completed but not sold on a short-term basis who were willing to vacate on a moment's notice? Would you still think that fix-and-flips were an “insane” prospect?
Religious Institutions Have an Edge
In fact, all of the above apply to federally certified religious institutions that perform regular fund-raising and have an active congregation. So why wouldn't they want to do fix-and-flips as a way to raise even more funds? If you can help them buy the property at the right price, they really have a great chance of building their nest egg for the future.
Here are the main advantages for working with religious institutions on fix-and-flips:
- They have cash to spend most of the time, which puts them ahead of the game for bidding on property.
- They can pay slightly more than most investors and still come out ahead, because they can get free or inexpensive labor from the congregation.
- The right seller might preferentially choose them over another buyer because they want to support their mission.
- You might be able to structure a deal as part donation and part sale price if the seller needs the tax break. (Check with the seller's accountant on this one.)
- Readymade buyers: If the institution has a member who is looking to buy property in the next few months, they can buy something and rehab it to that person's specifications. Buyers get exactly what they want, while the institution gets ready buyers.
- Institutions can take a longer view, so even if they need to sit on the property for a couple of years, they can do that without it being too much of a hardship — especially if they rent it out to a member of the group. This gives them the advantage of the rehab plus the benefit for the appreciation that is destined to come in the next few years.
- Timing: They don't have to buy right now, but they are ready when the right deal comes along. They don't have another property to sell, either.
Advantages for the Institution
There are many ways in which this project can create benefits for the institution, and they aren't just financial:
- Community building: The group gets a way to bond over a shared project, and the larger community of the town or city gets a vacant house off the books and improved property values in the neighborhood.
- Awareness building: The group is likely to be able to get coverage of their creative approach to fund-raising. Perhaps someone will see a news story or TV segment about it, and will donate their next property.
- Mission and fund building: With the publicity and the income from the project, the group will be able to further its mission and improve its ability to raise funds in the future.
What They Need From You
- They need the idea, first and foremost. They aren't likely to come up with this idea on their own.
- They need to find the right properties at the right price. Chances are, you know at least one property right now that would be great for a fix-and-flip.
- They need to know what improvements are worth making so that they don't make the mistake (like most first-time investors) of overimproving the property.
- They need a recommendation for a good licensed contractor to serve as the construction supervisor and oversee the project.
- They need someone to facilitate the sale. If they don't have an in-house buyer, then they’ll need help selling the property.
What You Get Out of the Process
You may be thinking that this seems like a lot of work for what will be a relatively small commission up front, but think a little broader. Let's say that several of the institutions you work with also have missions around getting the homeless off the streets or improving their community or helping out working families. You could work with several of those groups and create a regular source for affordable housing. This means that you could build a list of buyers looking for affordable housing and sell the houses to your buyers.
Now, we’re talking about three commissions on the sale of one property. Is it starting to look better? And then, you could even take this group of institutions and buyers to a bank with a lot of REO property and talk to them about listing it for sale to these groups. That could be four commissions on each property now — and the knowledge that you've done right by your community. What could be better than that?
Editor’s Note: In the wake of widespread foreclosure moratoriums recently enacted by a few major banks — most notably Bank of America’s nationwide foreclosure stoppage — approximately 1 in 4 foreclosures is currently affected by lender freezes. However, this remains a viable strategy for undervalued properties that are unaffected by the freeze. You can find more information at the Speaking of Real Estate blog.