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Flipping Good Times!

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By : Todd Levinson    99 or more times read
The practice of house flipping became so popular during the real estate boom that even reality television producers jumped on the bandwagon and created shows that followed investors throughout the flipping process. In the seller's market of the past, supply was down, prices were up, credit was easy to obtain, and there was a lot of money to be made in flips. Now that the market has crashed, is flipping still a good idea?

According to recent stats, which indicate the number of homes flipped in 2009 has increased by 19%, it appears the house flipping game is alive and well, although it seems it is being played differently.

During the peak of the market almost anyone could get the financing to buy an investment property, fix it up, and sell in a short time for a good profit. Amateur investors would almost always do well because prices were rising quickly and buyers (and their lenders) were eager to spend their money.

Thanks to the crash a high percentage of the housing surplus consists of foreclosures. According to the Mortgage Bankers Association foreclosure fillings increased 16% in the first quarter from a year earlier and bank seizures hit a record as lenders stepped up action against delinquent homeowners. Approximately 1 million homes have received a foreclosure notice and 5-7 million additional properties are eligible, but have not yet been served.

What does this mean for flippers? It means it is time for the amateur investors to step aside to let the big boys play. The surplus of foreclosures is great news for investors; however, only those with deep pockets need apply since a large number of repossessed homes are sold off at bank auctions and must be bought with cash, and many of these purchases are made sight-unseen so the element of risk is quite high. However, a new initiative by the Federal Housing Authority (FHA) has reduced some of the risk. Effective for one year, beginning Feb. 01/10, FHA borrowers will be able to acquire foreclosed homes from owners who have held title for less than 90 days. While this is good news, the fact still remains that there is an overabundance of homes on the market and a shortage of qualified buyers.

There are amazing deals to be had out there, but with high unemployment, consumer uncertainty, and tighter lending rules houses are not selling as quickly as they once did, so investors must be prepared to sit on properties for longer periods of time. An upside, if you can call it that, is that the record number of foreclosures has lead to an increased demand for rental units and investors can find good revenue streams from displaced homeowners.

So yes, flipping is still a good idea, except now it is mainly for the serious investors that have the ability to pay cash, and the patience to wait longer to see a return on their investment.
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