To Flip or Not to Flip

In today's housing market, the popular thing to do is flip houses. It can be a lucrative side business or a very lucrative full time job. Are you prepared to jump into a business with an element of risk? If you look at a few failures and successes, it can certainly enlighten your decision to flip or not to flip.

The first mistake investors make is finding a home that is in need of repair and immediately purchasing the property. The naïve investor thinks that all they have to do is install new carpet and paint the interior and put a for sale sign in the yard and ask $20,000 more than they paid for it. They even expect to sell it in 30 days or less.

The reality is that many people loose quite a bit of money doing it that way and there are more things to consider than just a quick fix on a property that needs it.

What most investors look for that have been down this road before is a property that is in a growing area, not an area that is on its way down in value. They also look for a home that has more possibilities than just carpet and paint. They look for landscaping opportunities and curb appeal.

If you purchase a home for $80,000 in a neighborhood that has an average price of $125,000 then you are looking in the right area. What you want to look for are things I call a major concern. Like the water heater, is it bad condition? How old is it? How about the roof? Does it need to be replaced? Standing water in the crawl space? How about the windows? Do all of them need to be replaced? Most people underestimate the cost of windows and if all of them need to be replaced, that can set you back a lot of money.

Have you taken into consideration how much it will ultimately cost to fix the house? You need to know the worst case scenario dollar amount or you are just gambling with your money. I am come across some people who put their own house on the line to flip another house and loose both. It is not a pretty picture.

Landscaping can help a lot, especially getting a potential buyer into the house to look at the interior of the home. You should either hire a landscaper to do it all or give you a design plan and drop off all the plans and trees at the curb and do it yourself. The one thing I always do that shocks people is I will find a property that has two big oak trees in the front yard and they completely block the view of the house from the curb so I cut them down and have the stumps grinded down. People say, "What'd you do that for?" I just tell them that you can't see the house and if no one sees it, then who is going to buy it?

Do you know if you are going to hire a realtor or not? I do but I always make a deal and I only pay 4.5% on every house sold through a realtor. How it works is, I tell the listing agent that all they have to do is take care of all the paper work. So, if they sell it, they get 1.5%. If another agent sells it, I pay them 3% and the listing agent gets 1.5%.

Why do it this way? I am always at the house I am selling every Sunday for a open house from two pm to four pm. I also, will run to the house to show it so the realtor doesn't have to. I do it to save 1.5% because a lot of times that is the amount I spend on additional tools to fix it up. I think you should get an agent but get a deal out of it. Don't just go for the full 6%.

The key to selling your home fast is buying an $80,000 in a $125,000 neighborhood and selling it for $115,000. Let's say you spent $10,000 fixing it up and you sell it for $115,000 - you made a profit of $25,000 dollars fairly quickly. But if you sold it for $125,000 and it sat there for eight to twelve months then figure out how much property taxes you had to pay and the payments on the loan you took out to purchase the home. Is it worth it? Maybe and maybe not but you have to think that during that twelve months you could have bought and sold another property and made an additional $25,000.

Flipping houses is not easy or everyone would be doing it. You have to consider many variables and the potential outcome before you start seeing income.