When Flipping Houses Opens Can of Worms
Written by: David Wilkening
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My wife knows a lot more about real estate investment than I do. No surprise there since she sells houses for a living. Used ones.
She often tells me about clients who are “flippers.”
Just about everyone knows them. They buy a home (cheaply, of course, perhaps because it’s a foreclose), spend a relatively few dollars on cosmetics (new paint is always popular) and gleefully sell at a profit.
Some people (naïve, I agree) think this is all there is to real estate. Buy cheaply (get bargains for whatever reason) and sell quickly at a fat profit. Who wants to bother with paying taxes while a property escalates (as you expect it should)?
Real estate is so easy, you can compare it to breathing, no?
There are people who do this and are successful at it. How do they do it? I will get into that at a later time, though this particular strategy is almost certainly not as simple as you may think.
Hint: you as a flip buyer need to know exactly (no estimates, please) how much and what you will need to do to make the property quickly available to a buyer who will usually have the typical criteria and basic wants of owners. That is, they plan to live in the house and not use it for investment reasons.
Here are some early indications that would-be flippers have told me indicate a successful outcome will be only getting your money back with no profit (don’t even think about it).
—When you have to send a repair guy back a dozen times to fix the same recurring problem.
—You just completed all your repairs but oops, the house may have seemed absolutely level but it was off by two inches. So what do you do now? Your contractor wants to know quickly.
—You find the contractor you trusted (stupid you, you are kicking yourself) took your down payment and disappeared. You can’t find him (maybe her but probably him).
—Your phone number on the door hangar that was delivered to 20,000 homes was wrong. You forgot to proof read it.
—Most of the homes around you are being vandalized (and it’s not even Halloween) in what you thought was a “good” neighborhood.
—You are driving through your neighborhood and notice that dope selling rings are clustered around every corner (and do you still think this is a good neighborhood?).
—You budgeted $3,000 for repairs but that was before you found termites everywhere. Not really expected despite inspections.
—Your appraiser thinks it is not fair that you want to sell that house one month after you bought it. They value the house at what you paid for it, despite your $2000 spent on repairs.
—This is classic and it actually happens: you are about to advertise the home but when you make a final inspection, you smell something funny. You can only be grateful it was an animal who died there and not a human being.
Those are only the tip of the iceberg on what can go wrong. Do you still want to be a flipper? ###