Here are three golden rules of real estate investing:
—Don’t buy with the expectation that the home will shoot up in value. During the housing boom, too many flippers got burned by counting on fast price appreciation. When the market tanked, so did they.
“If you buy only hoping that prices are going up, it’s the same as going to (Las) Vegas,” Levinrad says.
Flippers must buy at enough of a discount that gives them instant equity in the home, Levinrad says. That allows them to turn around and sell without having to wait for prices to rise.
Without instant equity, it’s best to hold off — unless investors are willing to become a landlord, he says.
Levinrad and David Dweck, founder of the Boca Real Estate Investment Club in Coconut Creek, Fla., say flippers should buy a home for no more than 65 percent of the market value after repairs. If a house is worth $100,000 after it’s renovated, and it requires $10,000 in work, the maximum price an investor should pay is about $55,000.