On its surface, flipping houses appears to be a fairly easy 5-step process:

1. Find a dontwanner. (That’s the term I use to describe a house that nobody, even the current owner wants.)
2. Convince the homeowner to sell the dontwanner to you for 25%-50% below market value.
3. Fix up the home to bring it up to market value or increase its market value.
4. Sell the home for at least 20% more than you invested in it.
5. Pop the cork on the champagne and start celebrating.

Like most things in life, flipping houses sounds a lot easier than it is. In Step 2, for example, why would anyone in their right mind sell you a house for 25%-50% below market value? Where do you get the money to buy and renovate a house? How do you make a 20% profit when repairs and renovations cost so much?

In subsequent blog posts, I answer all these questions and show you how to flip houses in a way that minimizes your risks and maximizes your potential profit.

If you just can’t wait for the next post, buy Flipping Houses For Dummies now!

I was recently interviewed by TheStreet.com’s John Morell for an article about flipping house in a down market. Here’s a snippet:

Flip This House, If You Can
By John Morell / TheStreet.com

What was it, three or four short years ago, when you could find a little house in a desirable area that needed some paint, putty and petunias, and turn it around a few weeks after closing for a hefty profit? Back then, the concept of losing money on real estate seemed far-fetched. But it happened.

Those qualify-by-breathing subprime loans dried up, people couldn’t make payments on loans that adjusted way upward, and tons of addresses hit the multiple-listing service. With too much supply and little demand, many of those house-flippers with dreams of early retirement (and maybe their own cable TV show) have abandoned the quick-turnaround real estate market.

But for some, there’s still opportunity. How It’s Done Now

“In a traditional house flip, you’re buying at wholesale and selling at retail; it’s simple,” says Ralph Roberts, a Warren, Mich., flipping guru and the author of Flipping Houses For Dummies.

He points out that this works best when the market is moving quickly, since a house you buy in May would likely be worth more a month or two later. However, a flipper now needs to find not just a good deal but a great one.

“You need to buy at below wholesale and then plan to sell at a price that’s under the current retail.”

Despite the glut of homes on the market, getting those great deals is tough, even for the experts.

“Our company used to flip hundreds of homes per year,” says Roberts. “This year, we’ve only bought one and sold one.”

For more, read Flip This House, If You Can. In the meantime, here’s a tip for flipping in a downward trending market:

When homes in your area are decreasing in value, invest no more than 60 to 65 percent of the property’s estimated value in the property (by contrast, when home values are increasing, 80 percent is a good rule of thumb, and when they’re flat, go with 75 percent).

For example, to flip a house you expect to sell for $200,000 in a flat market, you may buy the house for $120,000, spend $20,000 fixing it up, and use $10,000 for other expenses (such as mortgage payments, insurance, utilities, selling costs, unexpected bills, etc.). Your total investment here is $150k, which is 75 percent of the estimated resale value.

Now, in an increasing market (and yes, some of those are still out there, believe it or not), you can invest in a maximum of $160k (which is 80 percent of the $200k sell price). But in a decreasing market, you should only invest $130k (65 percent of the $200k sell price).

After you decide how much you can afford to invest overall, adjust the purchase price accordingly. Don’t expect to make up the difference in your other expenses (including renovation and holding costs).

Warning: On the surface, these numbers tend to suggest that you stand to make more in a declining market, but remember–in a declining market, you can’t count on selling the house for $200k!

I have long maintained that if you’re flush with cash or have good credit, now is a good time to be buying and planning for your next house flip.

With that simple thought in mind, I recently sat down for an interview with Tom Andrew, a reporter from Crain’s Detroit Business. As you can see from the image below, Tom’s story, “Some area house flippers find upside to housing downturn,” made it onto the front page of the current issue of Crain’s Detroit Business:

For more information on how house flippers in my part of the country are dealing with this real estate downturn of ours, please read “Some area house flippers find upside to housing downturn.”

Many novice real estate investors are so eager to score a big profit on their first investment, that they make a huge mistake - they set the asking price for the property they’re selling much too high. Some do this to “test the market.” Others may be so impressed with the renovations they made that they think the price is reasonable. But most investors who make this mistake really believe that asking more will result in a bigger profit.

The truth is that you can often earn a bigger profit by setting your asking price slightly below the going price in your area. The reason this works is that time is money. The quicker you sell the property, the less you pay in holding costs and the more time and resources you have to invest in your next investment property.

In both Flipping Houses For Dummies and the award-winning Foreclosure Investing For Dummies, we offer a modest estimate of holding costs (taxes, insurance, utilities) at $100 per day. This means that every month the property sits on the market costs you $3,000. Set the price a little on the low side, and you can slash your holding costs.

I am pleased to share that the most recent book I co-authored with Joe Kraynak, Foreclosure Investing For Dummies, has won the Gold Medal in the Real Estate (Buying, Investment, Management) category in Axiom’s First Business Book Awards contest. From Axiom’s announcement:

“The Axiom Business Book Awards are intended to bring increased recognition to exemplary business books and their creators, with the understanding that business people are a very well-read and informed segment of the population, eager to learn about great new books that will inspire and inform them, and help them improve their careers and businesses.

Nearly 400 entries were received in this inaugural year of our contest; the largest categories in terms of participation were Leadership, Entrepreneurship, and Success/Motivation, in that order. The big winners among publishers are Portfolio/Penguin with 5 medals; Wiley with 4; and Free Press and Bloomberg with 3 medals apiece.”

All books are a team project, and this particular book could not have achieved such success without the collaborative efforts of its editors, graphics artists, production crew, and the marketing mavens at Wiley Publishing in Indianapolis, IN, and Hoboken, NJ. We thank them, the many real estate professionals from around the country who contributed material to the State Foreclosure Rules & Regulations appendix, and to our readers, who inspired us to create this book.

Special thanks though goes to Joe Kraynak, without whom I would never have written this or any of my other recent books. Joe puts up with a lot from me and I am in awe of his talent and forever indebted for his knowledge and wisdom.

For more about Foreclosure Investing For Dummies, visit Amazon.com.

If you’re thinking about flipping home, now is a great time. Sales of existing homes, according to the National Association of Realtors, increased in February and are expected to remain within a fairly stable range.

Existing-home sales, which includes single-family homes, townhomes, condominiums and co-ops, rose 2.9% to a seasonally adjusted annual rate of 5.03 million homes in February from a pace of 4.89 million homes in January, but remain 23.8% below the 6.60 million-unit level that was seen in February of 2007.

For flippers, this is momentary good news. The national median existing-home price for all housing types was $195,900 in February, down 8.2% from a year earlier when the median was $213,500. Because the slowdown in sales from a year ago is greater in high-cost areas, there is a downward pull to the national median with relatively fewer sales in higher priced markets.

As a point of reference, existing-home sales are based on transaction closings. This differs from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85% of total home sales, are based on a much larger sample–nearly 40% of multiple listing service data each month–and typically are not subject to large prior-month revisions.

If you’re thinking about buying and flipping foreclosures, read this first:

Look before you leap into foreclosures — Avoid problems with ‘Dummies’ author’s 12-item checklist

BY Ilyce Glink, Wednesday, March 12, 2008
Inman News

As if Detroit, and the entire state of Michigan, hasn’t suffered enough.

Last year, Detroit led the United States in foreclosures, with close to 5 percent of its households entering some stage of foreclosure, according to California-based RealtyTrac, an online marketplace for foreclosure listings.

That number was nearly five times the national average, and almost double the number of foreclosures the city experienced in 2006.

But every cloud has a silver lining. Just ask Ralph Roberts, a top real estate agent in Detroit who says he has personally bought and sold more than 2,000 foreclosures during his career.

“This could be a great time to buy a home — if you have the resources,” he said.

Roberts, who is the author of “Foreclosure Investing For Dummies” and “Flipping Houses For Dummies,” said in a recent interview that he believes more than 6 million families are in distress nationwide.

“Maybe 1 or 2 million are behind in their mortgages and more have received their foreclosure notice,” he said. “But 2 million families will lose their home this year.”

Roberts says that now is the time to pick up properties at fire-sale prices.

“Properties could double in value over the next 10 years. But you have to be willing to go in, buy them, and hang on for the longer term,” he advises.

With foreclosure investing, he says, you get what you pay for. His book on foreclosure investing isn’t of the “get rich quick with no work and zero down in cash” variety.

Instead, he values doing as much homework ahead of time. To learn how to read complicated real estate and tax records, he suggests doing an exhaustive search on your own personal residence. Once you become familiar with how the information you know to be true is laid out in tax records, documents and deeds, you can begin to research homes in distress.

In addition to doing your due diligence on a particular home, Roberts suggests you create a file that contains:

• a copy of the foreclosure notice or notice of default;
• title commitment and a 24-month history in the chain of title or the last two recorded documents;
• a copy of the deed with the current homeowners’ names;
• the last recorded first mortgage, so you know how much the current homeowners owe (some of this may be available online);
• copies or documentation of all liens against the property, including property tax liens;
• a map showing the location of the property;
• your exterior home inspection (with photos and videos), plus neighborhood photos;
• city worksheet on the property showing all repairs, inspections reports and other information;
• local multiple listing service (MLS) data showing how much comparable homes are selling for in the area;
• copy of the tax bills and notes on whether they are paid up or not;
• notes from meetings with or calls to neighbors, if you met with them while doing your research;
• and, a copy of the SEV (standard equalized value) of the property, on which property taxes are based.

“Most people, when looking for a foreclosure, think ‘No’; they don’t think ‘Know,’ ” Roberts says. “To successfully buy a foreclosure, you have to build a Rolodex, get on the Web, talk to brokers, and go do your research.”

Roberts said that the Internet has been a boon for foreclosure investors.

“Go to the county’s Web site and see what kind of information they have listed. Sign up for the local legal newspaper. It costs about $1 per week,” he explains, adding that he subscribes to a number of foreclosure Web sites, some of them paid sites. “You get what you pay for.”

What I like best about Roberts and his books is that he appears to care a lot about consumers. He cautions foreclosure investors to think about homeowners and their redemption rights. He warns against being dishonest (foreclosure-rescue fraud schemes have grown exponentially, according to the latest figures from the Federal Trade Commission and the FBI).

And, he has put a lot of time and money into fighting mortgage fraud (see www.flippingfrenzy.com). Last year he published “Protect Yourself from Real Estate and Mortgage Fraud,” written with attorney Rachel Dollar.

For more information, pick up a copy of Foreclosure Investing For Dummies.

If you live in or around the Phoenix, Arizona, area and are interested in learning more about safely investing in foreclosures, consider stopping by the Phoenix Convention Center this Saturday, February 23rd, where I will be presenting the following workshop (as part of the 2008 Arizona Real Estate and Mortgage Expo):

TOPIC: Safely Investing in Foreclosures
When: Saturday, February 23, 2008
What Time: 2:00 p.m. - 2:45 p.m.
Where: Phoenix Convention Center

Safe foreclosure investing is like safe flying–the only completely safe way to invest in real estate is to not do it. However, you can employ several strategies to make investing in foreclosures safe. In this intense 45-minute workshop, I reveal field-tested strategies for maximizing your profit potential and minimizing your risks, including the following:

• Adjusting your profit estimates for different markets
• Bidding on first mortgages or at least buying the first if you buy the second
• Underestimating profits while overestimating expenses
• Thoroughly researching a property to avoid surprises
• Starting with a single property and working your way up
• Setting a bid limit before you even think of bidding

In this workshop, I guide you safely around the most common and costly pitfalls, so you avoid the mistakes that often eliminate the less careful investors.

For more information, visit the 2008 Arizona Real Estate and Mortgage Expo website.

I was recently given the opportunity to talk with Alex Markels from U.S. News & World Report about some of the topics covered in Foreclosure Investing For Dummies. Alex asked some great questions, which I’m pleased to share here (for anyone who may not have a subscription to U.S. News & World Report

Talking with a Foreclosure Guru
Ralph Roberts gives key tips on how to make big money in a down market.

By Alex Markels — U.S. News & World Report
February 13, 2008

Ralph Roberts is a Realtor who has written many books about the real estate market and flipping homes, such as Foreclosure Investing For Dummies. U.S. News talked with Roberts about some of the first things a potential investor should know before getting into the foreclosure market. Excerpts:

Investors are understandably skittish about getting into the real estate market. Why do you think now is the time?

If you can afford to buy a piece of real estate, there’s never been a better time in my 30 years of business than now. We have good prices, and unbelievably great interest rates. For a ma and pa investor, if you’re willing to buy a rental property, you can leverage it, and 10 years from now it will be worth double what you paid for it. All the people who have been displaced because they can’t afford to pay $2,500 a month, they surely can pay $1,500. If everybody had bought a 30-percent-cheaper house, we wouldn’t have had as many foreclosures as we have now. There are a lot of tenants out there who are displaced and were at one time living the American dream of owning a home, but they still need a nice home. People who are displaced become renters.

What about the concern that the market may only get worse before it gets better?

There’s always a boost in real estate after an election. I know all those people who are saying there’s going to be change. Well for sure there’s going to be change—George is not running. By January of 2009, you’re going to see the market turning the other direction and showing appreciation again. So between now and 2009 is a great window of opportunity to buy. The best plan is to buy it, fix it, hold it, and sell it 12 months and one day or further in the future, and you will get another benefit of getting a tax rate of long-term capital gains versus ordinary income. The long-term capital rate is only 15 percent.

How does foreclosure investing differ based on your locality?

Whatever city or county you’re going to invest, you’ve got to check what inspections they have. What do they require before you can put the house back on the market to rent it, or back on the market to sell it? You are responsible to follow those rules whether you know about them or you don’t. You must at least contact the city hall or the township hall before you make an investment.

What are some misconceptions about foreclosure investing?

Just because it’s a foreclosure does not mean it’s a good deal. Some people pay too much for a property if it’s a foreclosure because they think it’s automatically a home run. You should go to your broker and run the comps in the neighborhood. The most important thing is what’s selling right now. What’s your competition? That gives you a range. The next thing you want to do is check how many houses have sold in the past 90 days. You need to have your house priced the best for the condition that it’s in because you don’t want it to be the fourth house if only three are bought in your time frame.

Why is having a time frame so important?

Time is money. The average holding cost on a house is $100 per day. You’ve got to have a B plan. If it doesn’t sell in X amount of days, you’ve got to rent it until the market improves.

Most of the people doing foreclosure investing are not doing it as their primary source of income. How do you do it and balance the rest of your life?

First you make sure your spouse is completely on board. You want to have support from your family. You’re doing this to improve your lifestyle; you’re not doing this to take quality time away. Then you draw a circle on a map, and mark where you work at, where your wife works at, where your school is at, and put those items inside that circle. That’s your target area. If you drive 20 minutes to work one direction, and then you drive back home, and then 20 minutes the other direction to your investment property, you’re 40 minutes away from it versus if it was in your target area. Some people go too far out of their marketplace and that’s how they get into trouble.

How do you avoid taking advantage of people in this business?

Treat the people with dignity and do what’s best for them. Let’s say they tell you they have a rich uncle who could help them, but they’re just too embarrassed to tell him. Help them tell the rich uncle. By doing the right thing, it’s going to come back to you 10 times.

Data through October 2007, released today by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices–the leading measure of U.S. home prices–show significant declines in the prices of existing single family homes across the United States, marking the 10th consecutive month of negative annual returns and the 23rd consecutive month of decelerating returns.

The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Indices. The 10-City Composite’s annual decline of 6.7% is a record low. The previous largest decline on record was 6.3% recorded in April 1991. In October, the 20-City Composite recorded an annual decline of 6.1%.

• Miami surpassed Tampa in October, reporting a double-digit annual decline of 12.4%.
• Tampa followed with -11.8%.
• Detroit is next with -11.2%.
• San Diego follows with -11.1%.

Six of the metro areas are now posting double digit declines in their annual growth rates:

• Atlanta and Dallas finally entered negative territory, with declines of 0.7% and 0.1%, respectively, leaving only Charlotte, Portland and Seattle as the MSAs still experiencing positive annual growth rates.

The table below summarizes the results for October 2007. The S&P/Case-Shiller Home Price Indices are revised for the 24 prior months, based on the receipt of additional source data:

As I mention in September, now may prove to be one of the best times in history for legitimate investors to to buy properties they plan on renovating and flipping. U.S. home prices in most major cities are continuing to fall, and current market conditions are ushering in what I believe to be a once in a lifetime opportunity to invest in real estate. With all of this in mind, serious house flippers–especially those who are flush with cash–should consider now to be a great time buy up flipable properties.