In a previous column, I warned of some of the obstacles to earning a profit by flipping houses. Flipping houses is the term used for buying a house, doing repair work, and then quickly selling it for a presumed profit. There are dozens of shows on television depicting investors making big money in short periods of time. Please remember that those are just shows, not reality.
I am approached more often each week by people that want to flip houses and the national data shows that flipping is back. In 2013, 4.6 percent of single family home sales were resales in less than six months. This compares to 4.2 percent in 2012 and 2.6 percent in 2011. If you are going to join this growing rank of flippers, here are some tips to protect your investment.
Understand your market. Each market is unique and has different demands and opportunities. The Lewiston housing market is very different from the Windham market as the Windham market is from the Cape Elizabeth market. A $200,000 house may be a steal in Cape Elizabeth and way overpriced in Lewiston. Do your research, know market values, and watch selling trends before making your purchase. This will help you avoid a costly mistake.
Look at many properties. Not every property is a flip opportunity because it needs work. Network with people in the construction trades, real estate brokers, and other people that can turn you on to potential flip properties. Find the best value possible by searching and being patient. Opportunities are out there, but they are not everywhere.
Make money on the way in. The television shows glorify the remodels, but the truth is that you want to buy undervalued properties that you could sell for more than you paid tomorrow.
You will add value and more potential profit with the remodel, but protect your investment by purchasing well in the first place.
Watch for trends in the market. Which markets are seeing rising prices? Which markets are seeing flat prices? Is a market declining? When the bubble burst in 2007 and 2008, many flippers were caught with lots of inventory and no buyers. Watch your local inventory levels, local pricing trends, and even local employment trends to get a feel for your market. It is a good idea the watch some national numbers also. National employment and GDP are good indicators, as are interest rates and consumer sentiment surveys. Paying attention to these things should help you avoid buying properties in a downward trending market.
My most controversial piece of advice is simple. Make full price offers. Get sellers attention and get the deal. If it is already a well-priced house, get it under contract with inspection contingencies in the contract. Over the next week, while it is under contract to you, do your inspections and really find out what needs to be done. If you find more problems (also known as costs to you), start your negotiation then. Detail a list of issues and asked to have them resolved or negotiate a reduced purchase price. If you cannot come to an agreement, you can terminate your contract before your inspection contingency clause expires.
As always, used a qualified real estate professional to help you find undervalued properties, help you understand your market, and help you spot trends. Good luck and happy flipping.
Rick is a realtor, real estate author and longtime. Windham resident. You can contact Rick with any of your real estate questions or needs at email@example.com.