If you’re a regular television viewer, you may have seen a show or two about flipping a house. And you may have questions about it. While the term “flipping” has moved into mainstream lingo, a lot of people don’t fully understand the concept behind this real estate transaction, so let’s take a look at a few important details.
The term “flipping” refers to buying a home with the intention of selling it again quickly for more money than its purchase price. To make the house more appealing for a future sale, flipping a home entails some degree of renovation, whether it’s extensive refurbishing or merely a handful of cosmetic improvements. Although some flippers elect to hire contractors to do the work, it is most cost effective for the buyer to make upgrades and repairs on his or her own.
Perhaps most importantly, it’s imperative to have a solid understanding of the market in which you are hoping to execute a flip. A sluggish real estate market can spell disaster if you’re hoping to offload a home that you’ve recently purchased. In recent years, when loan defaults and foreclosures soared, flipping was far from the sure thing it had been during the housing boom at the outset of the prior housing boom.
When there isn’t a whole lot of inventory available for purchase (a seller’s market), flipping can be a profitable endeavor because making a sale is more likely. But you have to know what you’re doing. It’s important to be informed and educated before making the decision to flip a property. It’s essential to understand which neighborhoods are up-and-coming, and to choose a home that will be easy to sell for more than you bought it. Doing some research on the area and getting a hold of comparable recent sales will give you an idea of what you might be able to expect. It’s also important to realize what you’re getting yourself into in terms of the condition of the house. If the house just needs some minor adjustments, you are less likely to lose money than if a home has serious structural problems that will need to be resolved before selling.
Flipping a house may seem like a great get-rich-quick opportunity, but you have to be prepared for the unexpected. What kind of reserve cash do you have on hand to handle unforeseen repairs? If you have the spare time, a financial cushion, and the right kind of personality, flipping a property can end up being an enjoyable and lucrative experience in the right market. But if you’re struggling to pay your existing bills, the last thing you should do is take on an additional financial risk – even if you’re able to find a lender willing to back you – because flipping is anything but a sure thing.
The bottom line is this: flipping a house is a calculated risk that is best undertaken with a clear understanding of market conditions and the resources with which to cushion a loss. At its best, house flipping can make you some money. At worst, it can result in a financial blow.
