Just ahead of the housing bubble, flipping houses was quite profitable for many investors. As home prices started to rise, many ‘would-be’ real estate moguls bought houses to flip hoping that the prices would increase enough in a six to nine-month period for them to make a profit. The concept spawned reality TV shows like Flip This House and The Property Ladder.
Many savvy investors saw profits increase right up until the bubble burst. Others, particularly novice investors, became victims of fraudulent flipping schemes and unscrupulous banking practices. Post-housing bubble, investors with excess cash, picked up distressed properties for lower outlay, but had a harder time actually selling those homes since potential buyers were now more cautious.
The investors that survived the drastic ups and downs of the market moved to Plan B. When the housing market crashed and many people lost their homes, the rental market increased significantly. So, in the event their investment didn’t sell, investors made the most of the market by turning it into a rental property, viturtally coming out unscathed.
In the past couple of years, the “flipping” market heated up again. But, as home prices appreciate, and there are fewer distressed homes on the market for flippers to purchase, experienced investors say now isn’t really the best time for a novice to start on their own. In fact, many investors learned lessons from the housing bubble and the crisis that ensued from it bursting.
Here are some tips to guide your potential investment:
- Not every markets is profitable: While there are lots of homes that could be purchased, rehabbed, and potentially flipped in every part of the country, some areas are not seeing the kind of economic growth that makes flipping viable. You have to know your market very well, possess intricate knowledge about local values and be prepared by having deep pockets should the home not sell.
- Do your homework: Since there are fewer homes at the kinds of steep discounts seen in earlier years, consider planning to pay full price cash, but arrange for a delay to have the home inspected. If the inspection reveals problems, an opportunity to walk away, or negotiate additional financial terms with the seller is a possibility. Just remember that once you own a property, anything revealed during the inspection is now your responsibility to repair, replace or disclose.
- Know and fully understand your margins: Unlike the impression you might get from watching the popular reality shows about flipping, the margins to be made from buying and selling a home are not as large as they appear. (It’s television, designed for entertainment.) If you can find undervalued homes, you’ll have a cushion you can build into the rehab. If the difference between the purchase price and the new selling price is not as significant, avoid purchasing a home that requires thousands of dollars of repairs and upgrades or you’ll end up with a lovely home, but no income from it.
- Learn how to seek out potential houses: Lower inventory means that being able to find a home with the potential to flip is much more difficult. Use your network of real estate professionals, estate attorneys and even repair contractors to learn of possible homes to buy.
Watch the trends
The one constant in the real estate industry is change; real estate trends up and down all of the time. When you’re purchasing a home for your family, your motivation to buy is not as affected by those trends as when you’re purchasing as a form of investing … especially if you plan to flip it within six to nine months. The trend upward needs to be significant enough for you to make a profit, but not so significant that potential buyers cannot get mortgage approval to purchase it.
Seek professional assistance
As your real estate professional, I know the local market. With more than 20 years of experience, I understand the trends. I know who is buying, who is selling and who is holding. I pay attention to new businesses moving to the area with the potential to increase jobs and bring in new buyers. I know which decorative repairs and upgrades are most important for a quick and profitable sale. Let me help you make the most of your real estate investments.