Flipping Homes

These days there are tons of foreclosures and it seems like everybody and their brother wants to flip homes for a huge profit. Flipping homes is a hot topic on all the cable networks but can you really make tens of thousands of dollars in 2 or 3 weeks? That is what it looks like on the TV so it must be true! WRONG!!! What the “Flip This House” and other similar type shows don’t tell you is there are various additional charges associated with buying and selling a home. This also doesn’t include the holding costs with interest, utilities, taxes (both property and income), and other various fees that always come up. Yes, always come up. A typical investor is not able to purchase a flip home for cash. Even if it were possible it might not be smart to do so because it ties up all your leverage on one property. Don’t put all your eggs in one basket. Borrowing money to flip a home is a better plan but you must anticipate the interest costs and always try to save as much on the closing costs as possible since it is a short term loan. Paying up front costs to lower the rate sometimes referred to as a buy down is not the way to go either since the break even point is usually years down the road. Lets assume you found a low interest loan with low closing costs. The next thing is the total carrying costs which include utilities, taxes, interest on the loan, and all other costs that are required prior to selling or “flipping” the home. Television profits also don’t normally account for Realtor fees. A good Realtor is worth his or her weight in gold since they understand the market, have buyers that are currently looking, all the tools to market the home and can spend the advertising money wisely to also find a qualified buyer for the purchase while you focus your time finishing the home or finding the next one. All these costs should always be anticipated when evaluating a home. A Realtor can also tell you what a remodeled home in the area should easily sell for. It’s a good idea to anticipate a sale on the low end of the market. This will prevent inflated pricing and a potential long list time which results in increased carrying costs and decreased profits. Remember time is money. So lets say you are aware of all this and still want to move forward. The best idea is to consult with a Realtor and ask for assistance with your first deal. Buyer representation is usually free and if the agent is good they will help you make a profit in hopes you will use them again on the next deal. Flipping can be profitable but it is rare to make as much profit as the TV programs seem to always show. Take time to carefully account for all scenarios and even pad the costs a little so you don’t come up short. Flipping is not easy and if you miss these costs you could miss out on profits. Time lines on TV are far from realistic for most people especially if you have a full time job that interferes with the flip. Consulting with contractors is a good way to evaluate the time it may take to finish the flip. Remember some work must be finished before other repairs can start. Once again if you short yourself on time the carrying costs go up and profits go down. These points are meant to inform a flipper to the many pitfalls that arise from the glamorized TV version of flipping homes.

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