The Downside of ‘Flipping’ Houses
Real Estate Investing has been highly popularized in recent history due to the explosive success of reality TV shows based on the process of ‘flipping’ houses. These programs are highly successful in depicting the design aspects of real estate investing; however, they fail to depict the financial side of the business, and thus, many come into real estate investing with a skewed view of future prospects.
The rise of reality television which overly simplifies the real estate business has contributed to the downfall of many wide-eyed financially stable individuals looking to invest locally. One must be extremely knowledgeable not only with the skill of management, but also with financial matters in order to be successful in real estate. One of the biggest mistakes made by amateurs is having overly optimistic views with regards to time and money. The assumption that one can quickly make money by buying a few houses, renovating them, and then selling them has been the downfall of many entrepreneur –minded optimists.
The current economic crisis complicates the housing market in many ways. The recession has smothered the employment rate, consumer confidence, and bank ‘lend-ability’. Since one needs an income in order to pay mortgage, the housing market is slowing down because eligible buyers are suddenly jobless, and many of those who are financially capable of buying houses do not trust America’s economic system enough to invest in it.
Those who are ready and willing to buy are unable to because of the lending standards which banks have imposed as a result of loan defaulting. Of course, the general public does not realize these facts about the housing market, so they will continue to believe that they can effortlessly transition into the real estate world without major consequences.
The creation and distribution of overly simplistic views of the housing market as assessed by the media has led to the myth that success in real estate is fairly easy to achieve, especially considering the fact that America is now in a down market. Of course, it is true that if one is looking for a long term housing investment, now is the time to invest, because it is a buyer’s market.
However if one is only interested in obtaining quick money, then real estate is not the market to turn to. It is risky, unpredictable, and varied from region to region, making it quite possibly the worst place to invest for those who are interested in obtaining security for the future. Many fail to recognize that real estate is a long term investment of gambles, waiting, heartaches, failures and successes which make it not only frustrating, but also addictive. Success as a real estate investor is contingent on knowledge, flexibility, and fickle-minded consumers. Although it is an attainable challenge to achieve great success in the current market, long term ventures in real estate can be quite rewarding and fulfilling.
The Art of Flipping Houses
Flipping houses is a real estate investment art form and involves buying a house, doing the minimum amount of repairs to the property as needed and then turning around and selling the property for what is hopefully a profit. It all comes down to the numbers and you need to be able to keep a close eye and scrutinize each and every one of the costs associated with the repairs.
Flipping a house can be done on a part-time basis to earn some extra money and have some fun. It can also be a full-time occupation as done by a lot of real estate agents, remodelers and your fellow real estate investors. Many people such as Than Merill, or Armando Montelongo, tend to make a solid full-time income from the magical art of flipping houses.
Before you start flipping whether you intend to do it on a part-time or full-time basis you should do your homework and see if it is something you want to do and what you need to do to be successful. Here are a few house flipping tips, especially for those whom are currently or want to get involved in the house flipping business as a niche division of real estate investing.
One of the best ways to buy houses you intend to involve in the process of house flipping, particularly in the present housing market, is to pay cash if you can for the property.
Mainly because flipping in this market has become more difficult with the demise of the subprime market because getting a mortgage is more expensive particularly if you intend to only hold onto the property for a few months.
The advantages of Cash Utilization include:
- It cuts down on the cost of the property in interest rates because you need to finance the property for less money
- Having cash available means you can also have money to make necessary repairs
Usually most investors that are involved in flipping property want to buy foreclosure property mainly because:
- These properties are usually available at a discount
- The banks or FHA in this instance are usually depending on how many properties they have on their hands are more concerned with getting rid of the property than with getting the highest price for the property
- In these hard economic times more foreclosure properties are available for sale which means it is possible to likely get more properties is fairly good condition
Other ways to get a grasp on properties for flipping include:
- Preforeclusures;
- Sheriff Sales;
- Bankruptcies;
- FSBOs and;
- Tax Liens.
- Other options for tax flipping are also buying newly built homes.
On the other hand in this market at the present time regular properties not necessarily in foreclosure are also available for flipping like never before.
One thing, no matter what type of property you are flipping you want to make sure that you are able to get rid of the property as soon as possible. The point of flipping is to not keep the property too long. The more expenses you have to pay on the property such as mortgage, taxes, utilities and other required payments the lower your profit ends up being.
Join the conversation.
Real Estate Investing by Flipping Houses
In today’s economic times, the interest rates are dropping and foreclosures are on the rise. For you, real estate investing, if done correctly, can be beneficial. Purchasing a house and “flipping’ it can be a lucrative investment if you can do a lot of the muscle work yourself. “If” being the big word here.
“Flipping” a house is a term designated to purchasing a piece of real estate that needs work or a “Fixer Upper” as my generation used to term this type of property. This form of real estate investing has been highly popularized through the popular A&E TV Show appropriately titled, “Flip This House.”
Remember in school when you made a list of your homework? Ok, so I was a geek in school. Flipping a house requires you to do your research (cool internet here I come), check the average prices for surrounding property (ok, free exercise walking the neighborhood), similar to the one you are considering. You then need to prepare a list of what needs to be updated, brought up to code (here come the headaches dealing with the local government), or to make the property more appealing. When making this list, don’t forget the outside of the building as well as the grounds. Think about it, would you rather purchase a house that looks like a mansion or a house that looks like a shack? If you are not sure what should be done to make the property increase in value to re-list on the market at a higher price than what you paid, call your realtor and ask what most people are looking for in real estate.
Once you have this list, look to see what you know you can do yourself, what you think you could do, and those you would need to contract out to others. If you can hammer a nail, use a paint brush, can see what needs to be done, and willing to put a little elbow grease into it, you should do what you can on your own. Not sure how to do this? Then I would suggest a visit to the local library for self help books, check out the internet, or let your fingers do the walking in the yellow pages. One word of advice, keep ice, Band-Aids, turpentine, and your cell phone close by, trust me on this one. Band-Aids help to keep the blood off of the property.
After you have updated the rooms, made sure everything is up to code, the inside and the outside is aesthetically pleasing, plants and foliage around, you are now ready to have your best friend walk through and let you know what you have missed, hey what are friends for if not to let you know what you have missed. You have made the property to compare and compete with the surrounding properties.
Now it is time to figure the cost of what you should list the house. You have the cost you originally purchased the property, the amount it cost you to do the repairs or have someone else do the repairs. As long as the repairs, updates, and changes you have done have been done correctly, you have increased the value of the house. Now is the time to bring in your Realtor and work with them to set a price for the property at a nice profit. Real Estate Investing conducted through the process of Flipping Houses can indeed be a considerably profitable venture, yet if not done correctly, could also be significantly costly as well. It’s all up to you my fellow real estate investor?
Join the conversation.
