Assignment: House Flipping- Theory and Real World.

Part 1: Theory, Sample Case

Scenario. A 3 bedroom, 2 bathroom home with 2 car garage in a desirable neighborhood.

Market says that comparable homes in good condition sell for $160,000. You have examined the home and believe that it will need extensive work to make the kitchen and bathrooms current. It needs a new roof and other typical work. That often includes cleaning, painting, and flooring. You estimate that you will spend 3 months and $45,000 on the house, doing some work yourself. Your investment goals for real estate are a minimum of 18% of sales price as profit. You will use a real estate agent that charges 5% commission. Assume that this is your only closing cost. You will be using cash.

1. What is the most that you should pay for the house?

2. If you rent the house you would take out a loan at 5% for 20 years. You will borrow at 75% loan to market value. How much rent would you have to charge to break even each month to cover your mortgage payment plus $200 per month in expenses?

Part 2: Real Life. Now the fun part! Go find a house.

Locate a house currently for sale in Omaha using the internet, realtor's site, Zillow, or Realtor.com.

1. Describe the house. Approximate location.

2. Find three 'comparable' homes to establish the market value.

3. Based on photos, what types of work would you do to the home for what approximate cost? How long would it take?

4. What profit from the sale of the property would you want to make? (Be real)

5. What is the most that you should pay for the house and meet your financial goals? Do you think that you can buy it for that?