Chapter 14
Flipping Homes
In This Chapter
◆ What you need to know to flip homes
◆ The formula for successful flipping
◆ Working with contractors and partners
◆ Choosing the right upgrades
◆ How to market a flipped home
◆ Measuring your financial profit
Flipping homes is a practice that has been around a long time but has become popular in recent years. When home values were rapidly rising and the cost of borrowing money went down, the business attracted a lot of people looking to capitalize on the climate. Home sales of all kinds exploded and flipping homes became another way to make a big profit quickly. Television programs were created that showed how it could be done, and they made it look easy.
But flipping homes is not easy. It’s difficult, and even seasoned experts in the field can suffer some losses from time to time. If you think that you want to flip homes, there is such a thing as a formula for success. In this chapter, we share it with you. Our overall advice is to proceed with great caution, do your homework, be prepared, and create a financial safety net.
What Is Flipping?
Flipping is the practice of buying a property for a bargain price and then selling it quickly for a profit. If the real estate market is rising extremely rapidly, some flippers will do nothing to improve the home and still make a profit when they sell. But most flippers will make some upgrades in an attempt to make an even healthier gain.
Should You Get into the Business of Flipping?
There are pros and cons, benefits, and risks associated with any investment. Flipping is among the riskiest but also among the most profitable and rewarding. You can make a large amount of money in a very short time. If you have the skills required of a successful flipper, you will also have a wonderful creative outlet in your life.
On the downside, you can lose great sums of money; even experienced flippers sometimes suffer losses. If you are inexperienced and don’t have the proper skills, the risk is even greater. The stress levels are high in this business, and a project can temporarily be all consuming and take over your life.
The Necessary Skills to Flip Homes
There are certain skills and characteristics that all successful flippers share. Here is a list and a description of those skills.
Strong knowledge of the local real estate market. To make money when buying and selling homes quickly, it is crucial for you to have a keen sense of what different types of homes are worth in the region, what sort of upgrades are necessary, and the average amount of time homes take to sell. If you miscalculate, it can wipe out your profit. To educate yourself, attend public open houses and/or work with a Realtor to get inside as many homes on the market as possible. When you learn what these homes eventually sell for, you will become knowledgeable and have a realistic expectation of what your flip will sell for.
An understanding of buyer expectations in the area. When choosing certain upgrades to make to the home, you may overestimate the interest, need, or demand for them among buyers. In other words, get to know the group you’re selling to, as well as their expectations. For example, creating new bathrooms is very expensive and you may not need as many as you think. Why build four bathrooms when most homes in the neighborhood have only two and a half? Perhaps you want to add a two-story addition, but that may make the home dwarf others on the street, making it appear overimproved for the neighborhood. Fulfill buyer expectations without spending unnecessarily.
The ability to work with all types of contractors. Depending on how much of a transformation you’re making to a property, you will be dealing with several types of contractors, including architects, engineers, demolition workers, plumbers, electricians, masons, insulators, painters, landscapers, and roofers. You must have an understanding of what’s involved with each upgrade, the order in which the work is to be done, how long it takes to complete, the costs associated with it, and how it’s billed.
An understanding of finance and math. To flip homes, you must be able to obtain swift financing for a loan; understand how the mortgage business works to your advantage; understand how to calculate projected costs, profit margins, tax implications, fees and commissions; know measurements for ordering materials; and more. Some of the number crunching needs to be done quickly and under pressure. When you find a home that is a perfect candidate for a flip, you must have as many of your ducks in a row as possible. Speak to mortgage brokers, accountants, tax experts, contractors, Realtors, attorneys, or anyone who is in a position to give you an education on numbers, as early in the process as possible.
A love and knowledge of architecture and décor. This part of the process of flipping should be pure fun. After all, if you’re getting into the business, a main reason should be for the love of homes and making them better than when you found them. But it’s not enough to just love homes. You need to be well versed in what types of décor appeal to a wide audience and you should have enough knowledge of architectural styles and building periods to preserve, or even restore, the “authenticity” of the structure. Paint colors, countertop choices, appliances, fixtures, flooring, moldings, exterior accents, and even landscaping are part of the whole package when trying to improve the value of a flipped home.
A personality type that is calm and unafraid of risk. Perhaps the most prominent personality trait among successful flippers is that they are not afraid of risk. Flipping is one of the riskiest investments because you stand to make or lose tens (and even hundreds) of thousands of dollars. If mistakes are made, or the market doesn’t go your way, it can rattle not only your finances but your self-confidence as well.
Expect that there will always be at least one or two things that will not come out the exact way that you envision. Maybe cabinetry was hung an inch lower than you preferred or the paint color did not turn out to be the perfect shade. If you want to stay on budget and on schedule, decide which obstacles might require work to stop or slow down in order to be addressed and which can be overlooked. Always keep the project moving forward. Successful flippers are called upon to make lightning-fast choices on a constant basis and remain calm throughout the process.
The Formula for Successful Flipping
There are five ingredients to a successful flipping formula. To remember them, think of the acronym LUCKY.
Location
Upgrades
Contractors and Partners
Kickoff and Timeline
Yardsticks for Success
Upgrades
Contractors and Partners
Kickoff and Timeline
Yardsticks for Success
Location
When most of us hear the word “location” as it relates to real estate, we immediately think of the best (or one of the best) neighborhoods in town. But when it comes to flipping, you need to completely change your thinking, and this is what makes the business so fun and unique. You can flip a home anywhere you want to: in good or bad areas, expensive or inexpensive, suburban or urban, safe or unsafe, residential or commercial.
Don’t get us wrong; location is important. But when evaluating it for flip, the thing you absolutely must focus on is finding a home that has become significantly less valuable than other homes in the immediate area, either because it has been neglected or has not experienced updating in quite some time. To be clear, a good place to find a flip is in almost any location, but always in one where the other homes around it are worth considerably more money. Why? Because the home can be bought for a bargain price and, by making cost-effective upgrades, it will be intelligently transformed into something as valuable as the properties around it. If you have real talent, it may sell for even more money than others around it of equal size and condition.
Trick of the Trade
When you think you’ve found a great candidate house, give yourself the quick “flip test.” It may sound simple, but it’s powerful. We have seen so many flippers lose money because it was obvious that they didn’t take this simple step. Stand on the front lawn or even across the street. Look at the structure and the property. Look at the size of the structure, the condition of the exterior walls, the roof, the size of the lawn, the depth of the property, and the style. Then look at each house around it. Go back and forth with your eye from house to house. Will the flip be as good as these homes when you’re done? Forget the interior for the moment—and even cost. They don’t matter right now if the house candidate doesn’t pass this test. If you think it does pass, then go on to the next step, figuring the cost of making the house as good as the neighbors—on the interior as well as the exterior.
Upgrades
Upgrading a home while keeping costs down is probably the most difficult part of flipping. It’s not making them that is hard; it’s choosing the right upgrades to make. And the choice is not just rooted in cost. The key is in understanding the expectations of buyers in the region. Which upgrades do they “need”; which ones do they “want”; and which ones will they pay good money for in a home?
This is another moment when a Realtor’s counsel can be invaluable. The advice you get can save you from huge losses and help you to realize very big profits.
Seller Alert
There are some rare professional investors who flip properties without making a single upgrade. They are essentially betting on the market to go up soon after they purchase and they believe that the profit will offset the temporary carrying costs of the property. Carrying costs are regular ongoing expenses associated with home ownership such as mortgage payments, taxes, maintenance, and insurance. This is an extremely risky way to flip that relies heavily on the market going your way. We strongly recommend making at least some improvements to a home before you flip. It’s important to build additional value into the asset, as markets are unpredictable and can turn on a dime.
The amount of upgrading that goes into flips varies wildly from project to project. But no matter how many or how few you make, the profits should be proportionate to what you spend. We’ll get into the specifics of measuring your return on investment dollars later in this chapter. For now, let’s talk about the size and scope of your project. There are three broad categories that refer to the amount of work associated with flips and they are as follows.
The Structural Overhaul
Structural renovations usually refer to dramatic improvements that change the actual size and/or the architectural style of a home. They usually go hand in hand with changes or upgrades in the systems of the home, such as plumbing and electric.
Some flippers make a fundamental change to a home by converting it from one style of architecture to another. This requires a massive amount of work and is probably the highest level of expense. It is usually done by professional home renovators or builders who not only know how to build (or rebuild) fast, but who also have that keen sense of the local real estate market, its buyers, and what they want and will pay for certain types of homes.
One of the more popular projects among professional home renovators is to take a ranch and turn it into a large colonial. Ranches tend to have a big footprint because they only have one floor of living space, so it’s pretty easy to simply “build up” by adding a second or even a third floor. One of the reasons that it’s popular is because many communities populated by colonials have ranches that are randomly sprinkled among them. Taking a run-down ranch amid a sea of colonials and turning it into yet another polished colonial is considered to a relatively safe bet. If the predominant style in town is that of the colonial, then buyers obviously buy there because they like colonials. Therefore, the run-down ranch house is often a natural candidate for flipping after structurally overhauling it to a colonial.
Another popular structural overhaul is to expand a Cape Cod-style home or fully convert it to a colonial. Because Capes have limited space on the second floor, they represent another top candidate for people looking to flip. But be careful. Capes were typically built in clusters by developers and their sizes are usually pretty uniform, which means their sale prices can be uniform as well. If you try to flip one of them by changing the structure, you might turn off buyers who are afraid to pay more to own the biggest home on the block. If you can’t flip it at a good number, or flip it at all, then you have made a mistake in your choice of renovations. As we said earlier, be very aware of the other homes around your “flip project.”
def·i·ni·tion
Cape Cod-style houses built in colonial times (1600s-1700s) were small, one-floor symmetrical homes with a steep-pitched roof and a centered chimney. They were built primarily in the New England region of the United States. In the 1930s and 1940s, thousands of Cape Cod revivals were built all over the United States, but particularly in Michigan, Ohio, and Pennsylvania. These revivals consisted of one-and-a-half-story homes with no more than one or two bedrooms and sometimes a bathroom on the second floor.
Putting an addition onto a home before flipping it is expensive, but it can make great financial sense when the home is significantly smaller than its peers. This can be a fabulous moneymaker for you when you find that rare breed of tiny home that somehow got mixed up in a neighborhood full of giants. The home may have actually been the servant’s quarters to one of the neighboring properties over 100 years ago. It was also quite common in the eighteenth and nineteenth centuries for fathers to build small houses nearby for newly married daughters and sons. In any event, it’s a great opportunity to use the imposing homes around it as the motivating force to expand the size of the home and dramatically bring up the value of your flip project.
Seller Alert
Be mindful of scale when putting on an addition. We have seen so many flip projects where the addition is so gigantic that it literally dwarfs the rest of the home. It is not any buyer’s dream to buy a home with a tiny entry hall and living room leading into a cavernous addition slapped onto the back or side of the house. It ruins flow and makes the home seem lopsided. Another mistake is when the addition eats up too much of the property, making the house disproportionately large compared to the yard.
The Restoration
The restoration project is a more accessible project to flippers because it’s less expensive than a structural overhaul and because many flippers are able to do much of the work themselves, saving on labor costs. No walls are being moved. There is less demolition involved. The roof and exterior walls of the property remain intact. And it can be done faster than a structural overhaul. In some ways, a restoration is also the most fun, especially if you love to roll up your sleeves and get involved in the improvements that are usually rewarding.
Restorations typically cost less than a structural overhaul, but make no mistake about it: they can still be expensive. Because your money will be spread out on upgrades all over the home, it’s sometimes more complicated and difficult to keep tabs on cost, if you’re not experienced. Putting on an addition is like starting from scratch; you can anticipate costs better because it’s building from the ground up with all new plumbing and wiring. But in a restoration you can find new and unexpected problems each time you take down a light fixture or move a pipe. Your costs can unexpectedly go up considerably.
The restoration home might be in need of many major upgrades, including the following:
◆ New kitchen
◆ New bathrooms
◆ Refinished wood floors
◆ Restored or replaced moldings
◆ New or restored windows
◆ Repairing serious foundation cracks or compromises
◆ New furnace
◆ Updated electrical wiring and electric panel
◆ New plumbing
The Diamond in the Rough
We call a diamond-in-the-rough home one that is essentially a good home that just shows quite poorly. But when you look closely, you see that it is only in need of cosmetic improvements. All that is required to flip this house is some polishing up in order to make it attractive for a buyer. But do not be fooled by your low costs and fast turnaround time!
Flipping a diamond in the rough is yet another example of something in the business of real estate being simple but not easy. The challenge here is in knowing which cosmetic improvements to make. When you are strategic about the upgrades, you can keep your costs low, yet at the same time transform the home and make it look as though you spent much more money than you actually did.
def·i·ni·tion
Cosmetic improvements are any upgrades made to a home that are superficial and inexpensive relative to structural improvements. They improve the aesthetic appearance of a home in most cases. For example, painting, refinishing floors, and replacing light fixtures are considered to be cosmetic improvements.
A typical diamond-in-the-rough home often has these characteristics:
◆ It is equal to or greater in size than other homes on the same street. In other words, there is no need for an addition; it’s already large enough.
◆ There is no need to spend money on big-ticket items such as a new roof, siding, or a heating system.
◆ The interior construction is good and it has charm. The house is generally well built, solid, and perhaps has great architectural details.
◆ Still, the home appears to buyers to be in great disrepair. They perceive the property to have been neglected and in need of vast amounts of money to fix. But it’s an illusion. In reality, the neglect is only cosmetic in nature. There is a hidden potential in the home that won’t be seen by the average buyer because he or she is so distracted and turned off by what is perceived as a lot of work.
Some examples of cosmetic problems that can scare off buyers are overgrown weeds and shrubs, old and faded wallpaper, superficial cracks in walls, floors that are in need of refinishing, dirty or stained wall-to-wall carpeting, and dated light fixtures. When they exist altogether, these repairs can seem to add up and become overwhelming to a buyer. However, to a flipper, it’s a gold mine because he or she understands that it will take very little money to correct these minor sins and make the home beautiful again. It’s just a diamond waiting to be polished and sold at auction.
It’s a fact of real estate that the majority of buyers will pay a premium for a home in move-in condition. Updated homes sell for more money; therefore, you will make more when you flip it.
Contractors and Partners
Unless you happen to be a contractor yourself, you will likely be hiring one to make your upgrades. The way you communicate and work with this person is crucial to your success. You may also have a partner with whom you plan to flip homes. That person could also be your contractor, a passive investor, or even a spouse. In this section, we discuss all of these relationships.
Contractors
You will be working with the contractor, either as a temporary employee or as a partner. With either form of relationship, the contractor is still your key “point person” and you will likely be communicating on a daily basis, making hundreds of decisions together. The following are three things that you need to make the relationship work, in order of importance.
◆ Trust is the most important dynamic between you and the contractor. This person may have the biggest impact on your profit or loss, success or failure. He will be at the property every day, and quite often while you are not there. There is usually a lot of money at stake with a flip. You should feel you can trust him to show up every day, to do good work, to keep costs down, to be ethical, and to forewarn you when he thinks you are about to make a mistake.
One area where trust between the both of you can impact cost is that of upgrades. You might expect him to warn you that a choice you’re making is foolish and costly, but not all contractors for hire will do that. Let’s say that you want to add an extra bathroom. You may not realize that the diameter of the sewage pipe going out to the street isn’t wide enough to accommodate another bathroom in the house. Replacing that pipe is an enormous cost, but the contractor may not forewarn you of this if the nature of your relationship is such that he simply does what he’s told.
◆ Obviously, you should feel that the contractor has talent—that he’s good at his job. But we’re not just referring to how well he can frame out a new addition. You should feel that he has a broad view of what a home needs or doesn’t need as well as being a clear-headed, solution-oriented person. Many contractors are quite good at telling you what you cannot do instead of proactively offering ideas about what you can do.
Trick of the Trade
Another plus for sharing profits with the contractor is that you may be able to pay him less up front and save on your pre-project, out-of-pocket expenses. You could also give him a combination of profits and a small weekly salary.
◆ Incentive is your personal insurance policy. We strongly urge you to create incentive for the contractor to keep costs down, do the job fast, and do it well. The easiest way to incentivize him is to cut him in on the profits. Now, by definition, this makes him a partner and maybe that’s not such a bad idea. You’ll be sharing a portion of the profits when the project is finished but there will likely be more profit to share as he will be sure to come in under budget and on time, if he’s motivated. Here’s one small example. In the demolition phase, dumpsters will be loaded and hauled away. There is a charge to you each time another one is hauled. But some contractors will not fill the dumpster up all the way, creating additional and unnecessary expense. You may not be aware that the dumpster fees are higher than they need to be. A contractor who is motivated to keep costs down will fill those dumpsters to the brim before taking them away.
Partners
If you are just getting into the business of flipping, taking one or more partners can be a good idea. Depending on what kind of a partner you have (limited partner versus general partner), it can be helpful to divvy up the work and spread the risk around so that you don’t have to shoulder all the responsibility of the investment. There are two broad types of partnerships in any business: a general partner and a limited partner. A limited partner invests money in the venture or business but has nothing to do with the day-to-day operations. If the business should fail, he is not liable or exposed for any more money than his initial investment. However, a general partner is legally liable for any debts or even legal action that the business may face.
On the downside of partnerships, while you have reduced your risk, responsibility, and liability, you must also share your profits. Partnerships are also susceptible to conflict which can be very bad for business, not to mention your personal friendship. Take the time to evaluate your need for a partner and who the best candidate would be.
Seller Alert
Flipping will have tax implications for you. Regardless of whether or not you make this your profession or just a side activity, profits will be taxed by the IRS as income. But the IRS wants to know what “kind” of income it is. For example, if flipping homes is your job, then the IRS will tax your profits as active income. If it’s something you do on the side as a hobby, it will be taxed as passive income. This matters because if you are running it as a business (and receiving active income), then you must pay social security taxes. If you have employees, you must also pay payroll taxes and worker’s compensation, too.
Further, if you take on a partner, be sure that he or she is labeling the income the same way that you are. For example, let’s say that you have taken your contractor on as a general partner. Not only has he invested in the project, he is working on the project as well. Plus, he has assigned employees to work on the project. While you may claim it as passive income, he may claim it as active income, coming in through his contracting company. The IRS will pick this up.
Kickoff and Timeline
You will begin the process of selling a flipped home the minute that your offer to buy it is accepted. Even though you may not close on the purchase for several weeks or months, you will need to set your plans in motion so that you can begin work the day after closing.
Speed is one of the most important considerations when flipping a home. The goal, whenever possible, is to sell the property in the same market cycle in which you bought it. Market cycles are periods of time over the course of a year where many homes tend to go up for sale. For example, many communities in the United States consider the “spring market” to be the most desirable time to sell. The spring market typically begins in January and ends in June.
Home values (and the speed at which homes sell) are always moving and changing. It is easier to predict future value within one given market cycle, such as the one between January and June. It’s much riskier to buy in one cycle and then wait to sell it in the next, because your prediction may be way off.
This business is about hedging your bets and having built-in safety nets. A universally accepted safety net in the home flipping business is to work swiftly in order to sell the home in a market period similar to the one in which you bought it.
Like any renovation or construction project, you should have a master timeline to keep you focused, on time, and therefore on budget. Time is money! There are so many marks to hit and they must be hit in a certain order, too. This is the area of flipping homes where it is most important to understand construction, each specific upgrade, how long each will take, and how each one impacts another. You could almost compare a home to the human body. Both have “systems” running throughout. Plumbing and electrical wires are like the veins of a home. The ceiling, floors, and walls are the bones. As soon as you mess with one part, it has an effect on other parts.
To create your timeline, begin with a master list of all your upgrades, how long they will take to complete, and in what order they will be done. The following is a sample chronological list of improvements that may be made when flipping a home and the order in which they should be made.
Trick of the Trade
The following are just three examples where timing and order really do matter and how upgrades affect one another:
◆ Update the electric before renovating anything, especially kitchens and baths. The new outlets get placed and wired long before paint gets applied, and moldings, tile backsplashes, and appliances get installed.
◆ Never paint interior walls before refinishing floors. The fine dust from sanding embeds itself in the fresh paint. Depending on how many layers of stain and polyurethane you’re applying, allow as many as five or six days for floors to cure, or dry.
◆ Do landscaping after you paint the exterior, not before, as it’s very difficult to get all the scrapings from the old paint up from grass and around shrubs. Exterior painting should be scheduled for when temperatures will be at least 50˚F; above 60˚F is even better, but no higher than 85˚F.
When the renovation and upgrade work is completed, you should build about a week or so into your schedule to have the home staged, photographed, and generally prepared for sale. In order to do this in a timely manner, you should have already completed the process of researching, interviewing, and choosing a Realtor, if you are using one to market your flipped property.
Seller Alert
When you schedule your final inspections with the local municipality and pass them, your permits will then be closed. After your permits close, your property taxes may be raised as a result of the improvements you have made. Most Realtors (and many buyers) know this and wonder what your new assessment is. Be prepared to share the new tax bill with potential buyers when you sell the home.
Yardsticks for Success
Calculating sheer profit is what most of us might think is the only measurement of success that matters when you flip homes. After all, that’s the goal, isn’t it? Not always.
Learning the Business
If you are just getting into the flipping business and working on your first project, you might set realistic goals. For example, the goal may be to get through your first flip and learn as much as you possibly can without “losing” money (just breaking even). If you accomplish that, then you were successful. Most experienced flippers would say that breaking even your first time out “ain’t bad.” The learning curve in flipping is so incredibly steep that we can guarantee you’ll still be learning on your fiftieth flip.
Return on Investment (ROI)
Return on investment (ROI) is a common term that reflects how much money you made compared to how much you invested. It shows profit or loss on an investment and it is a number that is expressed as a percentage. Many flippers aim for 20 percent return on their money but may be quite happy if they end up with a 10 percent return. Going below 10 percent is still showing a profit, of course, but the margin for error is getting thin and if something goes wrong, you could easily shift from showing profits to showing losses. Shooting for 25 to 30 percent is ambitious and not typically realistic. It’s not that it can’t happen, but it’s a very talented flipper indeed who can get that kind of ROI on a consistent basis!
To calculate the ROI on a flip, begin by tabulating all your costs, including the purchase of the home, to establish your total investment. Let’s assume the flip will be purchased for $200,000 and you have $50,000 to use as a down payment. Your plan is to flip the home within three months, and you expect to sell it for $275,000 when you’re done.
How to Calculate ROI on a Flip
Your “income” will be the price for which the flip sells. Let’s assume that your prediction was correct and the property sells for $275,000. To calculate your ROI, divide the income (or sale price) by your investment (or costs associated with flipping):
$275,000 Sale Price (or income on the
investment)
÷ 248,010 Investment (or cost associated
with flipping)
= 1.1088, or an 11% return
investment)
÷ 248,010 Investment (or cost associated
with flipping)
= 1.1088, or an 11% return
Trick of the Trade
A fantastic way to boost your profit even more is by living in the home as you make the upgrades or renovations. This is hard to do if you have a family whom you do not want to move around from property to property. But if you are a mobile-type person or perhaps single and can reside in the home you are flipping, you will save by eliminating the cost of renting a place (or paying mortgage and taxes) to live in another location.
How to Market a Flipped Home
A flipped home should be marketed like any other home using the principles of SALE (see Chapter 9), but with two specific additions: sell the upgrades themselves, and emphasize the contractor’s level of work to potential buyers.
To review, SALE stands for the following:
S = Stage
A = Aggressively Price
L = Lead the Deal
E = Expose the Property
A = Aggressively Price
L = Lead the Deal
E = Expose the Property
Lead with the Best
On almost every level of marketing (MLS, brochures, and the like), tell potential buyers what you have done to transform this home. Many of the buyers and probably all of the Realtors will remember the property’s condition from when you bought it just a few short months ago. Make it clear immediately that this is a “new and improved” version. You’re saying to the buyer pool, through your marketing channels, that if you haven’t seen this home lately, you haven’t seen it—come see it with a fresh perspective.
Sell the Contractor
Quality of workmanship will be extremely important to potential buyers because they may be wary of flippers out to make a fast buck using cheap materials and shoddy labor. Deal with this fear head on by educating everyone to the level of workmanship of the contractor. You must establish credibility and buyer confidence in your construction team. If the contractor has a strong reputation locally and has done other good work, direct buyers to those other properties as well as providing testimonials from past clients.
The Least You Need to Know
◆ Flipping is the practice of buying a property and quickly selling it for a profit, usually after making some improvements.
◆ Flipping requires a deep understanding of the local real estate market, buyer expectations, construction, finance, architecture, décor—and a willingness to assume risk.
◆ The five ingredients to a successful flipping formula can be remembered by thinking of the acronym LUCKY, which stands for Location, Upgrades, Contractors and Partners, Kickoff and Timeline, and Yardsticks for Success.
◆ The three types of flips are structural overhauls, restorations, and diamonds in the rough.
◆ There are two broad types of partnerships. A limited partner has no responsibility or liability beyond his initial investment. A general partner is legally liable for any debts or legal action that the business may face.
◆ To determine your return on investment, divide your income from the project (sale price) by your investment (costs associated with flipping) to come up with a percentage.
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