The Flipside of Flipping Houses
January 28th, 2010 | 
Author: The Flipside of Flipping Houses
Television programming and infomercials of all styles will have you believe that flipping houses is a fun and fascinating way to turn a serious profit in real estate. It is just that, though it is also so much more. There is a lot of money that can be made by flipping houses (buying homes in various states of neglect or disrepair, making the repairs, and then selling for a sizeable profit) by the right professionals. However, there is a massive amount of work that is actually involved in the process of making that money.
The sheer volume of work, the time consumption, the sleepless nights and days, and the sometimes disgusting chores that must be done in order to get a run down property in sellable conditions is often glossed over on these television shows for various reasons-most of all the reason that the average Joe sitting at home wants to believe that he too can do this kind of work for quick profits and these images are not conducive to that illusion. In other words, this is a tough racket no matter how easy they attempt to make it seem.
Poor planning is the bane of a property flipper’s existence. In order to have a successful flip (and by that I mean maximum profit-minimum investment not any profit at all) you must carefully create a plan of action and implement that plan as quickly and cost effectively as possible. You must also realize that there are likely to be rain delays, hiccups, and disasters along the way. Proper planning can eliminate some of the disasters that may occur but it will not eliminate every conceivable possibility that will come along. More importantly than anything else however, proper planning can limit these occurrences as well as their severity to the overall time schedule and budget.
Another important thing, which falls under proper planning, is having a proper inspection done. The importance of this step cannot be stressed enough. Knowing the problems and potential problems that exist in a property can help you create a workable timetable and budget for the property flip. This also notifies you of potential problems you may encounter along the way. The television shows that deal with this week in and out often leave out this oh so important step and many would be investors find themselves investing in a money pit rather than a home that has potential to turn the quick profits they are hoping for.
You should make every effort to insure that your first flip is a simple cosmetic flip (this is something that a good inspector can assist with). In fact, this should be the case for your first few flips and then you can move on to more substantial flips that involve more work. The reason is simple-while the profits will be somewhat smaller on these cosmetic flips it gives you, as the investor, the opportunity to learn to budget, set timetables, and live within those budgets and timetables. This is where most investors go astray when taking on projects that are above their means. A house flip is no small endeavor and there is a lot of money to be lost along the way when this particular real estate investment doesn’t pan out. Start small and ignore the dollar signs in your eyes, then work up to more extensive projects.
Another pitfall that many investors make is not catering to the audience they are hoping to attract in the property being flipped. A bachelor’s pad does not need 3 or 4 bedrooms. At the same time, a family home typically needs at least 3 if not 4 or more bedrooms. Other considerations should be fenced in yards, landscaping, and maintenance requirements. Low maintenance lawns are in high demand these days particularly low maintenance lawns that appear to be well landscaped.
Keep these things in mind when flipping your real estate and you should see some degree of success-just remember, the rewards when you are doing things you never thought you would be doing during the process.
Posted in Property Fortunes
great post.thanks
My father is a carpenter and many years ago we did this with older homes, restoring them to sell. I think for someone new, the biggest thing to look out for is that the home inspector you get doesn’t have any relationship with the Realtor selling the house. Get someone completely independent to do the inspection.
The other big problem is estimating costs for renovation. A 20% overage is pretty common on some jobs so be prepared. I wouldn’t do a first flip where if you come out 20% over budget, it’ll threaten the whole project. Also one other mistake newbies might make is putting too much money into the house so it’s priced out of that particular neighborhood.
I’ll admit it, even with my dad’s years of experience we busted the budget sometimes and had to get additional financing. I agree a persons first few should be cosmetic restorations, when you start busting down walls you really never know what you’ll find.
An unbiased home inspector really is your best friend. If you uncover termites or water damage after buying it, you can easily end up underwater when it comes time to sell.
Flipping houses is a good business and can prove to be quite successful if you really knows the art of it, but in today;s world when the recession is there so better to stay away from this business.
Thanks for the great advice and tips. I am no expert with home improvements so I don’t think I would purchase a property to renovate. Though if I ever did, I would take into account all of the tips you’ve listed and be sure that I work with a great team.
I am so excited about this blog!! It holds great information and great points to flipping houses. This has inspired me to learn more before I start flipping houses, and will give this information to friends and family! Thank you!
thanks for your post!
i will keep these in mind when flipping real estate.
well done.Thanks for sharing this.
Flipping real estate is definitely less glamorous than they portray it on TV. If you do your homework and have a solid team in place, it can be an exciting venture.
Honestly, with the way the real estate market has been the last few years, borrowing money to buy a house in the hopes of reselling it for more would scare me. How do you guard against the market turning against you? Even if the house is “worth more” relatively speaking due to your repairs, if all the values are dropping, it can still be worth less. Though I guess as low as mortgage rates are now, and as far as the market has dropped, maybe now is the time to do it and figure that prices in general can only stay steady or go up.
Here is something a future house flipper should look into when it comes to insuring you project.
The simplest way to insure your property is to obtain a builder’s risk insurance policy. This is made easy as it is precisely for property that is new construction or in the process of being remodeled. These types of policies typically cover damages or destruction resulting from fire, lightning, hail or wind storm, some sort of explosion, aircraft, motor vehicle, smoke, and vandalism. One thing to be aware of is that a builder’s risk policy does not cover liability, and should be purchased separately.
As for obtaining liability insurance, check with your insurance agent to see what your current homeowner’s policy has on it with regard to liability (limits and total coverage). You may ask your agent to attach a rider with your current policy to cover your new investment property as well. This is an excellent way to protect yourself during a temporary remodeling project.
Also, be sure to ask your agent how much your coverage for in the chance that someone (worker) would get hurt on your jobsite. It would be a good thing to know in advance should an unfortunate accident happen to somebody.
There are a lot of factors in a successful flip and you need some luck as well. Let’s say the permits take a little too much time to turn over. Inspectors go on vacation, or the weather turns rainy and stops work on the property. Your money’s tied up and you have to report to work or turn you attention to family issues. Mortgage interest and insurance premiums, contractor payments, all keep ticking on the meter. If the market finds a soft place or middles out in your price range. You now own that property and may end up living there if you have to sell one of your other roosts.
Interesting article. I think it’s difficult to know the timing of when to sell. Also as Gloria says there are a lot of factors to consider to do a successful flip.