House Flipping - Can You Still Make Money?

Posted on January 28, 2008 - Filed Under Business

You probably already know that buying rundown properties, fixing them up, and selling them for a profit is known as ‘house flipping’, due to the glut of TV shows that focus on that method of real estate investing. But the housing market has changed over the past year or so. Prices in most areas of the US have stabilized, and in some areas they have fallen. Can a house flipper be successful in an environment like this?

Yes, it’s still possible to make money, even in a stagnant market. However, the investor needs to be a lot more careful nowadays. In the previous gung-ho housing market, most flippers could count on market appreciation to save them. Even if they had numerous unexpected costs and delays, the fact that it was a seller’s market would more often than not insure that they at least broke even, and in some cases, scored unexpectedly high profits. That’s unlikely to happen with current conditions. Finding the right property to start with is now paramount. Many experienced flippers were saying all along that the profit is made when the house is bought, not when it’s sold, and now this is more true than ever.

The problem is compounded by the fact that the media popularity of house flipping has brought a lot of new investors into the market, making competition for suitable houses more intense. In some markets, mostly high-priced ones, bidding wars are occuring for fixer-uppers, due to interest both from investors and from individuals who want to buy a house to live in but have been priced out of the market. In these areas, finding a property that will allow a profit after the costs of renovation and marketing are figured in can be like finding a needle in a haystack.

But if you live in areas where prices are more moderate, then making money at flipping is still possible. You do have to be careful about sticking to some tried-and-tested rules, however.

First of all, make sure your projected improvements will not require you to set a sale price that’s out of line with the neighborhood. If you buy the worst house on the block for $150,000 and comparable homes in good condition go for around $190,000, don’t set a budget of $40,000. It’s a fact that you’ll wind up going over budget more often than not. Even if you do manage to hold the line, you’ll still need to ask at least $220,000 to break even after allowing for realtor fees, carrying costs, and the other niggling expenses that add up. In this market, trying to sell for that much over the norm may mean a long wait. Better to set a budget of $20,000 and make the house presentable, which will probably result in a much quicker sale.

Another thing that can really affect the end result is the renovation timeline. If you plan to complete the renovation in four weeks and it winds up taking twelve, you’ll have at least two additional mortgage payments. Depending on how much those payments are, this delay could actually remove any potential for profit. At the least, it surely makes it more difficult.

Something else to keep in mind is to remember that you’re not renovating the house to live in, but to sell. So make sure the renovations appeal to the large majority of possible buyers, not just to your own tastes. Ignoring this rule was something that many flippers got away with during the boom market, but in tighter financial times, purchasers paying a premium for a totally redone property will prefer to get exactly that - not something they need to redecorate.

Lastly, once the house is finished, stage it. As you may know, staging refers to furnishing the house and making it look lived in. Some studies have shown that staging can cause a property to sell forty percent faster. The process of staging will not only attract more buyers, but will also frequently get a larger number of realtors involved. And don’t forget the outside when staging. Improving curb appeal by arranging landscaping in an attractive manner will make a big difference in how many prospective buyers actually make it through the front door. Lots of people will just drive away if they don’t like the exterior of a house.

So if you’re up for the challenge, you can still make money flipping houses. Just realize that now you can’t count on the contribution of that silent partner called market appreciation.

If you want to read more about house
flipping and all areas of investing
in real estate click over to Joe’s site at http://www.besthouseflippingtips.com

Tags: flip a house, House Flipping, real estate investing

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