Residential Real Estate Speculation: Flipping Houses For Profit

By Mark Di Vincenzo. May 7th 2016

Ten years ago, during the housing boom, tens of thousands of Americans tried to make money by buying and then quickly reselling houses, and the term “flipping houses” became part of the nation’s vocabulary. Flipping mostly stopped by 2008, when home sales stalled, but in 2009, a new kind of flipper showed up – the kind who sought bargains at foreclosure auctions, buying homes for a third to a half of the mortgage owed to the banks.

Today, as home sales are beginning to recover nationwide, more speculators are again betting that flipping houses can make them quick money. But it still is a risky proposition, especially for newcomers competing against real estate professionals who are on the lookout for great deals for their clients and against experienced flippers, many of whom are backed by wealthy real estate investors.

If you are considering a career as a house flipper, the following will guide you on what it takes and the risks involved.

Flipping Basics

Do Your Homework. Know everything there is to know about your housing market. Find out which neighborhoods are the most desirable, how much you should expect to pay for properties and how much someone else would pay for them. It often takes a keen eye to recognize a good deal, and the more information you have, the better prepared you are to spot a gem in the rough.

Find Mentors. Find smart, honest and trustworthy advisors, such as a real estate agent, a loan officer or an experienced flipper.

Find Handymen. Ask around to find subcontractors who are fair and fast. You’ll need them to make the inevitable repairs and renovations to the properties that you purchase.

Act Fast. Time is money. After you buy your property, don’t sit on it. Have home improvements done as quickly as possible to get the house ready for sale, and put it on the market as soon as it is ready.

Accumulate Cash. Flippers need money for down payments, escrow and loan fees, utilities and mortgage payments as well as for repairing or renovating. Or they need investors who have money. Flipping houses is a business, and businesses require money to operate.

Be Brave. You’ll need nerves of steel to do this. Real estate investing can be very stressful, and you may have very little time to decide whether to invest a great deal of money.

Be Prepared For Anything. Keep in mind that you won’t be able to inspect some of the houses that look like the best deals, and you may encounter some pleasant and not-so-pleasant surprises.

Pros To Flipping

You Can Make A Lot Of Money. We’ll get the obvious one out of the way first: Flipping gives you the opportunity to make a lot of money in a small amount of time. What’s a lot? It’s possible to make tens of thousands of dollars in a few months if you pick a low-maintenance house and sell it quickly.

You Can Be Your Own Boss. Yes, you have to follow building codes and zoning requirements and answer to the bank, but you make your own decisions. This is a great profession for those who like to work alone.

You Can Save A Lot Of Money. If you are handy with a hammer and a saw, you can save a lot of money by doing the renovations yourself. And you can involve your family and teach them valuable skills.

You Can Work When You Want. Flipping offers a flexible work schedule, so you can work around a full-time job or take off whenever you like, giving you time for other things.

It Provides A Stable Employment. If you’re good at flipping, you can do it in any real estate market and during any time of the year.

It’s Rewarding. Flipping can be very rewarding and the source of a lot of pride, especially if you take a distressed property and improve it. People who do this often end up improving neighborhoods by removing blight.

Cons To Flipping

It Is Risky, And A Lot Can Go Wrong. Housing markets can be volatile, and you can lose a lot of money, even if you got a good deal on a nice house. Some flippers buy houses that are just hard to sell through no fault of their own. Some flippers buy houses that are still subject to a first-lien mortgage, and they must pay off the first mortgage to gain control of the house. Those who buy houses before viewing them have discovered that the houses have been stripped of valuable amenities, such as granite counters and kitchen appliances. Others have tenants who may be hard to evict.

It Can Be Expensive. You need a lot of money to buy a house and fix it up, and many people underestimate the expenses and overestimate the profits. Houses typically need more than a coat of paint and a new flower bed in the front yard. If you don’t have the skills to repair a house, you need to pay someone to do that. That cuts into your profit. And you can find yourself dependent on a slow contractor in a business in which time is money.

A Lot Of Competition. The Internet has given a lot of information to anyone with a computer, and that means real estate investors everywhere have access to the same information about what’s for sale. You will need to find creative ways to beat the competition.

Not Having A Regular Paycheck. If flipping is your full-time job, you better be prepared to budget your money because some months you’ll make nothing and some you’ll feel like Donald Trump. Your children still need to eat during those lean months, so if you struggle to budget your money, you may want to consider a different line of work, or keep your day job.

Many people, lured by the promise of big money, conclude that the pros of flipping houses outweigh the cons. However, it is unwise to get into the profession unless you truly understand and plan for the potential risks. Like just about any job, those who work hard and prepare well are better suited for success. If you plan to get into housing flipping, make sure that you do your homework ahead of time. It could end up saving you a lot of heartache over the long run.

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