In a buyers market house flipping often becomes very popular. People buy a home and then resell it quickly to make a little money. The key is approaching this whole process with enough cash to actualize the profit. Effectively you need enough to buy, make renovations and then carry the mortgage until you re-sell. The asking price of the house when put back on the market also has to be in line with whats financially equitable for that house/neighborhood. If you pay to much on the front of a flip, you will not make money.
One thing that may safeguard you from getting in too deep is a house inspection. It doesnt cost that much and can root out problems that otherwise would be too expensive to fix and flip. Remember that when youre done with the house your prospective buyers are likely to want an inspection, and if they find something you dont know about, sales potential drops (as does offering prices).
A third way to keep costs down in a flip is (believe it or not) hiring experts to do the necessary painting and repairs for you. If it is going to take you twice the amount of time as a professional to get his work done youre not saving money doing it yourself. Also, most people simply dont have all the skills to do carpentry, plumbing, roofing, painting, tile, etc. A DYI flip can turn into a nightmare when a person tries to take on too much. Additionally some items like wiring will require the work of a licensed profession followed by the building departments inspection so why not skip to getting that help right off the bat?
Remember a key to flipping is doing things quickly. The only warning here is to choose your renovation projects carefully. Invest in those things that are budget-friendly and value-added. Dont buy high end appliances, for example just have ones that LOOK good in the space. You want to put the house on the market for about 2 percent below the going price of other similar homes. That will land you a fast sales, but you cant do that if you over-spend.
Different Types of Flipping
There are different types of house flipping. The type described in this article thus far has been a fix-it flip where the buyer gets a well-priced home that needs some serious TLC. However, the repairs are not so extensive as to disable the opportunity to make a profit. Other types of flipping include
Buying to sell to another investor, who then in turn puts the property on the market as is.
Buying low, selling high (this is much easier to accomplish in a sellers market)
Neighborhood remodeling (typically a commercial endeavor to improve the living and working spaces and decrease crime, all of which increases home values)
Buy and Lease
The buy and lease approach to flipping is a little different. In this case you rehab the property then lease it with a buy option. Here you get a little each month above and beyond the mortgage from rent. Then when the renter buys the property theres no need to enlist a broker, which is where profit comes in (along with less in capital gains tax).
Pre-construction
There are some areas where homes and condos are still a prime market. If buy a house before its constructed you gain the benefit of the growing market. By the time the home is complete, the appreciated value provides the profit to your flip sale. Note this is a very risky undertaking. Dont invest more than youre willing to loose if that market suddenly turns south.
Consumer Warning
There are some very unethical flippers in the market who will get a cheap property and do very little to it. Then, they inflate the price and try to re-sell it (sometimes using fraudulent appraisals). This leaves the buyer with a home thats over-valued and a high monthly payment that they may or may not be able to afford. Of course its easier to commit this crime when working with new home buyers who know little of how real estate transactions should work. If you discover any such activities it should be immediately reported to local authorities as the practice is illegal and typically results in jail time.
