Flipping a house is an adventure, but when you get started, you never know what you'll be up against or what terminology you'll need to navigate.
You're handy with power tools and have a pile of cash that could burn a hole in a mattress, and property flipping might be just the thing to help you grow that pile into a huge pile of money.
But before you attend an auction or start scouring for bargains on foreclosure sites, you should know that real estate resale comes with its own unique, and to the uninitiated, lingo.
Read on to find out the difference between a dollhouse and a haircut, and more.
Distressed Real Estate
Yes, you probably already know this, but it's the starting point for most home flipping projects. Distressed properties are in distress and are usually in the foreclosure process. They are taken over by a bank or lender because the original owner hasn't paid their mortgage for a while (sometimes for a long time). They generally have one goal: to sell the property fast. That's why distressed properties are priced well below market value. They're a bargain!
30-60-90 Advance NOD
This is a primary list of leads generated by real estate data companies for homes where the owner is 30, 60 or 90 days late on their mortgage payments.
The key here is that the property is pre-foreclosure and has not had a Notice of Default (NOD) filed, meaning it has not been publicized yet. If you want to get your hands on the property before other rehabbers, these listings let you see which homeowners are about to give up and jump on them quickly. These listings give you a competitive advantage in the marketplace, and they usually cost money and are often priced per lead.
Value after repair
This is the price people will pay for the property after you fix it up. This is your profit margin. This is what you're aiming for and is a key metric in your investment strategy. You need to realistically calculate how much the house is worth based on the amount of fixes you plan to make and similar properties in the area. So if you find a property that looks like crap but has good bones and is in a desirable neighborhood, the after-fixture value, or ARV, may seem incredible. You should probably make an offer on it.
Dollhouse
It's a home that needs a bit of repair — just some cosmetic touches — a new paint job and maybe some light fixtures — so Barbie herself would be proud to live in it. There aren't any more serious issues (foundation, plumbing, electrical) that would require a lot of work and cash to get it in marketable condition.
haircut
Love the simple feel of a dollhouse? This property could sell even faster. Just dump the trash and mow the lawn before you put up that “For Sale” sign and you'll be good to go!
Bird Dog
Much like wirehaired pointers chase off pheasants, these professionals hunt out distressed properties whose owners are desperately trying to sell. When they smell blood, the sniffer dogs (also called “deal scouts” or “real estate agents”) sell this information to regular or professional real estate agents who then swoop in and close the deal.
Optimum
Property flippers often use other people's money, or OPM, to limit their own financial risk. Unless you're super confident in your property flipping skills and have cash to spare, OPM can make the difference between making property flipping an attractive side hustle or a life-threatening investment.
Hard Money Lenders
Hard money lenders provide financing for home flips in a fraction of the time it takes to get a traditional mortgage. They're not banks, but private companies or individuals. And yes, the interest rates are higher — in the teens. But when flippers need cash quickly at auction, hard loans can serve as a bridge until a longer-term loan can be secured — or they can simply resell the home and pay off the lender.
Wholesaler
This is a real estate flipper on human growth hormone. These professionals buy distressed properties, then quickly turn around and sell them as is to another flipper. These agents work so fast that they may not even close the initial purchase agreement. They only agree to buy the property, find a buyer before closing, and transfer the purchase agreement to the next person. This is great because the wholesaler gets to make a profit without paying anything. That said, you need to know what you're doing and how to spot a property that has real potential.
Weekend Warrior
This is the more casual flipper, someone who does this as a hobby or part-time side income. These flippers typically invest their sweat equity (see below) in, you guessed it, weekends.
Sweat Equity
That's the energy and effort that real estate agents put into buying, fixing, and selling a property. With any luck, it won't involve tears, blood, or a trip to the hospital because of a broken nail gun. A little actual sweat won't hurt.
Crying Sale
This is an outrageous tongue twister used by auctioneers at foreclosure auctions. Auctioneers practice it for years. Each year, the National Association of Auctioneers hosts the International Auctioneer Championship, where contestants are judged on clarity, vocal control, speed, rhythm, and vocal expression.
Bene
Bene is short for “beneficiary.” If a distressed property does not sell at a foreclosure auction, the property automatically goes to the beneficiary, a bank or lender, who typically puts it up for sale as a foreclosure property and hopes for the best.