Tuesday, April 3, 2012
Flipping Houses-Blog Post 2
April 3rd, 2012
Blog Post 2
According to Real Estate Analysis: Environments and Activities, the term flipping refers to a 3-step short term real estate wealth building strategy consisting of acquiring property at bargain prices inexpensively adding value typically through operating efficiencies, repairs or improvements, and quickly reselling to realize the gain (Diaz & Hanz 477). Through research I concluded both the benefits and drawbacks of flipping houses and talked to a professional in the house flipping industry to get a first hand look at what its like.
Flipping has made a comeback in the past 4 years due to the market and the real estate market crash. During the housing boom many Americans tried to make money by buying and then quickly reselling new houses and condominiums. That kind of flipping stopped several years ago as home sales stalled amid a surge in foreclosures and bad lending from banks. In today’s economy a new kind of flipping is taking place, one that seeks bargains at foreclosure homes, where a lot of money is possible to be made as an investment. Investors and real estate professionals are calling nicknaming flipping houses, “flipping your way to wealth”, and the statement couldn’t be truer. One of the only drawbacks to flipping is that you have to have the initial investment to get involved in the business and be successful at it.
An interview that was conducted with a family member that chose to remain unnamed stated, “When I first went into the flipping business I had no idea how successful I would be. I first bought a small duplex in section-8 housing and it needed a lot of work. I bought it for $79,000 in 2010 and put about $6,500 worth of work and updates into the place. Recently it was appraised for $145,000 and I am paid rent every month on both sides totaling $3500, I have more then made my money back on the place and continue to make money on it. Last year, I bought a house in Clovis for $100,000 and put about $4500 worth of work into the place, I was going to rent the place but I had some one in the neighborhood offer me $165,000 for the place and I took it. It was amazing, all I had to do was make a few changes to the outside and update the inside and it was hot on the market, people today just don’t want to put in the effort, they want homes that are all ready to go. So I will definitely stay in this industry, it surprises me everyday; I’ve heard some crazy stories too. It works out perfectly for me because I am a contractor as well so most of the work I do to the places I do myself so that saves a lot of time and money and I know it will be done right. I’m always looking for places to buy and improve, there are so many available right now too with the market being so bad, it’s just about being able to visualize your investment and seeing what changes you can make for the better, to actually make money on the place. I tell myself practice makes perfect; hopefully by 2015 I plan on having 5 rental properties in the Fresno/Clovis area, this way I can retire early! I should have started this a long time ago.”
Flipping real estate, buying a property at a low price and selling it at a higher price in a short timeframe, can be a risky endeavor. But if you’re willing to take on the risks and do your homework, flipping also can be a fun way to make a lot of money, says author Mark B. Weiss, CCIM. Weiss, a Chicago real estate broker and a director of the Chicago Association of Realtors. Weiss shares his top 3 best tips when it comes to flipping real estate in his book, the first one is, “look beyond the property to determine value”- it is important to look at the area surrounding and how it could possibly change in the years to come. Could the area improve in any ways or could it go downhill? How are the roads? Questions like these are very important to ask and answer before investing on a property. Often people get excited about a really good deal and don’t think about these things and the property ends up not being as profitable in the end. The second tip is “know when to walk away”, the biggest reason to abandon a property is the price being too high, but there are other factors to consider for walking away, for example there is too much work to be done. It is important to “trust your gut”. The third and final tip that Weiss offer is to “hire a tax expert that really knows real estate”, in real estate it is essential to have a good accountant and one with a background in real estate is even more valuable, they can really save you from making some bad decisions in investing and help you in making the right one which leads you to making the most profit possible.
House flipping isn’t as simple as it may seem however, the article “5 Mistakes That Make House Flipping a Flop”, outlines the mistakes that must be avoided in order to be successful in the industry of flipping. The first mistake is not having enough money, this seems like an obvious concern but a lot of investors do not realize that flipping is not just buying a property and throwing a couple coats of paint on the inside and then it is valuable, you actually have to put some real money into the property to help increase its value. Investors must factor in renovation costs as well as property cost when it comes to the purchasing, they must be able to afford both. Along with not enough money being a mistake, not having enough time and skills are two other mistakes investors make in the flipping business. Renovating and flipping houses is a time-consuming business venture. It can take months to find and buy the right property. Once you own the house, you'll need to invest time to fix it up and after that many other things need to be done that take time, like inspections and bank appointments. If you have the time and money then you are on your way to being successful. Not having enough skills is a mistake that is not as common but it is said that ‘flippers’ that do the work themselves tend to be more successful because they have the resources to fix and eliminate certain problems that others cannot. The last two mistakes are not having enough knowledge and not having enough patience.
The bottom line is flipping houses takes research. Like any other business venture, flipping houses takes time, money, patience and skill but if you have these things or are working to get them, the benefits that are possible to come out of flipping houses can be very valuable. Flipping houses is a wonderful opportunity to make money, the drawback is that you have to have the money to invest, but its well worth the time and money it takes to flip a house it’s also a huge benefit to our economy and keeps the economy flowing.
Diaz, Julian, and J. Andrew. Hansz. Real Estate Analysis: Environments and Activities. Dubuque, IA: Kendall Hunt Pub., 2010. Print.
Hagerty, James. "House Flipping Makes a Comeback." The Wall Street Journal. Web. 3 Apr. 2012. <http://online.wsj.com/article/SB126022588878780861.html>.
"House FlippingÂ Tips." FresnoInvest.com. Web. 03 Apr. 2012. <http://fresnoinvest.wordpress.com/2011/01/25/house-flipping-tips/>.
Quigley, Kelly. "Flip Your Way to Wealth." The Weekly Book Scan. Web. 03 Apr. 2012. <http://theweeklybookscan.blogs.realtor.org/2004/12/01/flip-your-way-to-wealth/>.Smith, Lisa. "5 Mistakes That Make House Flipping A Flop." Investopedia. 06 Mar. 2010. Web. 03 Apr. 2012. <http://www.investopedia.com/articles/mortgages-real-estate/08/house-flip.asp>.
Posted by Unknown at 1:50 PM