Should You House-Flip?

If you've watched any late-night television in the last few years, you probably have been exposed to the real estate investment concept of house flipping. House flipping (a.k.a. property flipping or real estate flipping) has featured prominently in a number of “income generation” kits (less politely called “get-rich-quick” schemes).

But don't be so quick to pity those soft-headed (oops, I mean soft-hearted!) folks who fall for such things. This is one get-rich-quick scheme that, thanks to the buoyant housing market, has actually worked for a lot of people. In fact, house-flipping is not just for the get-rich-quick set. It has been around almost as long as the real estate market, even if it wasn't always called that.

So is house flipping a real investment plan or just a get-rich-quick scheme? And is it for you? As with all investment decisions, the answer is: maybe.

What Is House-Flipping?

1. Fixer-uppers. Perhaps the most traditional and familiar form of house-flipping is simply the buying and improvement of down-and-out properties. Arguably, the tear-down-and-build phenomenon of buying houses only to build more luxurious houses on the same site is an example of this.


2. Distressed properties. There is a whole sub-ecosystem of the flipping world devoted to buying foreclosed or soon-to-be foreclosed properties at steep discounts. These range from life-savers who deliver people from the brink of foreclosure, to con artists who overstate the risk of foreclosure and understate the value of the property.


3. Rising market. In many local US housing markets over the last few years, simply holding onto a property for a year has been enough to get a substantial return on investment.

Risks and Challenges of House-Flipping

1. Fixer-upper. You're probably asking yourself: why didn't the owners of the house simply fix it up first and sell it for the higher price? The answer presumably is that the fixer-upper flipper has a lock on below-market-rate contracting resources, or some kind of inside knowledge on what little touches make a home really sell in a particular market.


2. Distressed properties. There are huge risks associated with buying distressed properties. The most common risk associated with distressed properties is that there isn't enough time or even an opportunity to do a thorough inspection. So instead of getting a great deal, you might be getting a lot of nasty hidden surprises. In short, buying distressed properties assumes that you have some kind of inside knowledge that the property is not hiding an expensive secret—either that, or you are dealing in a substantial number of properties and are counting on the good to make up for the bad.


3. Risking market. What happens if a local housing market stops rising? That is arguably what has happened in a number of local US housing markets. Some reports indicate, for instance, that in Boston, homes are sitting on the market longer and that the average sale price has fallen. Meanwhile, the substantial fees involved in buying and selling real estate, as well as maintenance, insurance, and property taxes, mean that the price has to go up significantly for the flipper to break even. Even if property values don't fall, but stay put or just rise more slowly, the flipper can lose money if the higher sale price isn't enough to cover costs.

Article Source: http://www.SponsorDirectory.com/Free-Content

About the author: Joel Walsh writes extensively on homes for sale: www.ziprealty.com

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