Don’t Have Enough Cash to Flip a House? Try Flipping Land With Just $1,000
You're probably familiar with the idea of flipping a house: buying, fixing and selling a home for a profit within a relatively short time frame. But did you know you can do something similar with vacant lots and acreage? In fact, in some parts of the countryyou can start flipping land with as little as $1,000.
The strategy I'm about to explain is one I've used several times over the years. Here’s how I’ve made money flipping land, as well as why the strategy works -- and how to find the opportunities near you.
My First Real Estate Profit
I was 20 years old and living in Michigan when I saw a 2.5 acre parcel of land for sale for $4,500. It was on a quiet dirt road a mile off the highway. I offered $3,500 -- most of the savings from my minimum wage job -- and the real estate agent who owned it agreed. (Lesson: it can't hurt to make a low offer). Closing costs came to about $100 (they were lower back then), so I invested $3,600 total.
I cleaned the property and outlined a possible driveway by laying out some dead trees. Starting from a survey marker in the corner, I put sticks along the boundaries and painted the tops white, staying several feet inside the property lines to be safe, since I'm not a surveyor.
Land sells more easily when people can see what they're getting and envision what can be done with it. Roughly marking property lines (tell buyers this is a guess, not a survey), cleaning up the property and hinting at where a driveway might go accomplishes that. I spent about four hours preparing the property for sale.
The hand-painted sign I nailed to a tree said, "For Sale: 2.5 acres for $4,750: $250 down and $100 per month." Two weeks later, I sold the property, closing the deal in a restaurant. The buyer paid full price.
The buyer also paid 11% interest on the monthly payments. By the time the balance was paid in full a few years later, my $3,600 investment had made me more than $2,100 in capital gains and interest, even after the minor transaction costs. It wasn't the last deal I did.
Why This Real Estate Strategy Works
It helps to clean up your property, which most sellers don't do. It also helps to make it clear where the property lines are, another thing most sellers don't do. But the most crucial step if you want to sell for more than you paid is to offer easy financing.
In my first deal, the buyers said the property was overpriced and the interest rate too high. Then they closed the deal anyhow, at full price. Why? They liked the parcel and could afford the $250 down payment and $100 monthly payments. In other words, they probably didn't have a lot of other options. Now the land might be worth $20,000, so I imagine they're happy with their investment.
Whether it is cars, furniture or real estate, most buyers will pay a higher price if it's easy for them to buy. So here's the whole plan in one line:
Buy cheap for cash and sell above market value for a low down payment and small payments with high interest.
Finding Cheap Real Estate to Flip
The Penny Hoarder has previously reported on how to buy land for $100 or less by bidding on eBay auctions. There are also many places you can search online for cheap acreage and building lots. Here are three to consider:
This site is oriented toward homebuyers, and you can only search one city at a time. But if you set the search criteria for "0" bedrooms and bathrooms, and click "Price: Low to High" in the "Sort" field, the lots and land will usually top the list of results.
Here in North Port, Florida, Realtor.com shows lots starting at $2,200, and there are more than 130 listings for under $5,000.
To see cheap properties all over the country, enter a maximum of $5,000, then click "United States" under "Narrow by Country" (most listings are in the U.S. anyhow). Sort the results to list the cheapest ones first.
The filters don't work perfectly, so you'll see some rental properties, or an auction property will show up in the "fixed price" results, but you can still find listings starting at less than $1,000 here.
You have to choose a state to search, so to test the site I chose Colorado with a $5,000 maximum price. One of the results on the first page was 5 acres for $1,800.
Of course it's easiest to invest near home, so start looking around town. Since many sellers will not have their properties listed by an agent or online, drive around and watch for signs. And check free advertising websites like Craigslist.
Once you find a property you like, find the selling prices for similar properties by searching "recently sold properties" plus the name of your city. Offer less than what you think the land is worth, making it clear to the seller that you're paying cash and can close any time.
Selling With Financing
Even more than when flipping houses, you have to be willing to hold land for a while, because you never know how long it will take to find the right buyer. Fortunately, property taxes (your only expense) are minimal on raw land.
To sell more quickly, start preparations before you even close the purchase. Make a "for sale" sign, prepare ads for Craigslist and get the necessary forms for selling.
You can sell using a "land contract" (as I did), which is also called a "contract for deed" in some areas. Look for free land contract forms online. You retain the title to the property until the final payment is made, at which point you sign a deed for the buyer.
You could also sell with transfer of title and put a mortgage on the property. If you're not sure which is better where you live, talk to an attorney (in some places the foreclosure process is faster for one or the other type of contract).
It's up to you and the buyer to negotiate a down payment, the monthly payment amount and the interest rate. Just remember that to get the best price, you have to make it easy for the buyer.
It's possible that a buyer will stop making payments, in which case you'll have to foreclose on the contract to get your property back. But unlike a house that could be trashed when you get it back, there is less to go wrong with land, so it isn't as risky to sell with a small down payment.
Do the Math Before Buying
Before you even make an offer, calculate how much it will cost you to buy a property with closing expenses, and have a selling figure in mind. Take into account any selling costs as well. You should be aiming to make a decent total return after all expenses.
For example, suppose you see a lot advertised for $5,000. You figure the buying and selling costs will run about $500 (with no agent commission if you sell on your own). Your estimated selling price is $6,700 and you want to make at least $1,500 plus interest after expenses, so you offer $4,500 cash and the seller agrees.
Now suppose you sell it for $6,700 with $300 down and payments of $282 per month at 7% annual interest. The buyer pays off the $6,400 balance in three years. After expenses, you'll have made a $1,700 capital gain plus $740 in interest, for a total return of $2,440. If you invest only a few dozen hours, this could be a worthwhile deal.
On really cheap land you have to try to at least double your purchase price when selling. Even if you buy a piece of land for $1,000 or less, you'll still have at least these expenses:
- Closing the purchase
- Recording the deed
- Property taxes until you sell
- Closing the sale
- Recording the contract
- Preparing the deed when your buyer pays in full
They could easily add up to $400 (or more), so even if you sell for $2,000 -- double what you paid -- and you make $200 in interest, you'll still make a total return of only $800. You probably don't want to bother for much less than that.
Read about how to draw up a purchase agreement and close a land contract online. I typically took forms from previous deals and changed all the specifics to save money and still have proper paperwork. If you prepare the papers and then have an attorney review everything and close the deal for you, both you and the buyer are protected, but without the added expense of professional document preparation. Ask an attorney whether title insurance is necessary and normal, or if a simple title search is sufficient where you are.
Your Turn: Would you consider trying to flip land for a profit if you can start with a few thousand dollars or less?