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House Flipping: Wonder, Woe & Warnings



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By : Jamie Mathwig    99 or more times read
House flipping is everywhere: countless TV shows are devoted to it and entire communities on the web have sprung up around it. A quick Google search for "house flipping" reveals about half a million results. It seems as though everyone and their uncle is buying cheap fixer-uppers, renovating them, and selling them for a tidy profit, but we hardly ever hear about the disastrous outcomes of house flipping. Here is some background information and warnings to give you the real scoop on this rewarding and risky real estate investment technique.

Flipping has been around for a long time but has only garnered the attention of the public at large in the last ten years or so. Popular home design shows have contributed greatly to the notoriety of this practice as have, perhaps to a lesser extent, the job losses many Americans have faced in recent years. Post-recession is a great time for house-flippers who still have capital to invest because many prices are so low. Buying a cheap house which only needs cosmetic improvements in a fairly good neighborhood is a fun, lucrative and gratifying investment.

House flippers are also, albeit unintentionally, doing a great service to the surrounding community by creating aesthetically-pleasing facades. Great curb appeal means greater value for that property when its sold, which, in turn, increases the value of nearby real estate. It might even encourage other residents in the area to renovate their own homes and, let's face it, that's a nice perk for other homeowners who are tired of looking at ugly houses.

Despite the many positive sides to house flipping, there are some downsides that prospective flippers should be aware of. The most obvious of these is risk. Of course, with practically every investment one makes in real estate or in any other arena, there is almost always a risk involved. House flipping is especially risky because of the enormous profit potential. If done properly, one house flip that takes two months can bring in an amount equal to a year's salary, or more. The other side of the coin is not so shiny, however.

Letting the potential profit cloud one's vision is common in high-stakes investment and house flipping is no exception. It's not honorable, but several famous house-flippers have been known to lie on mortgage applications, especially in the case of stated-income loans, to get financed. That is tax fraud, pure and simple. What happens then when the flipper lacks the cash to actually pay the mortgage? This specific blunder stems from a deadly mixture of greed and short-sightedness.

Shady dealings aside, there are several legitimate albeit ignorant mistakes newbie flippers make. The first is not checking references. Contractors and other people who flippers hire must be licensed and experienced. If not, a volcano of trouble will quickly erupt. Secondly, buying a property sight-unseen is a big no-no. This might seem like common sense, but there are a surprising number of people who make this gamble.

One huge mistake some make is simplifying the task at hand. Just because you're great with interior design and know what buyers want to see in their new homes doesn't mean you'll be able to stick to a budget or help out with labor. Similarly, a good carpenter or tradesperson does not a good flipper make; it takes a variety of skills to get the job done well and a keen sense of the market to know what real estate will yield profit margins large enough to be worth your time and effort. For this reason and others, good house-flippers ask for help and bring on partners when it's needed. For some, the stakes are too high not to invest as a group: the profit may be significantly less, but so may be the potential for loss.

Many people report incredible success stories with their house flips, but many others lose everything; it's a profit-or-perish situation. If you're considering trying to make it in the house-flipping business, make sure you invest in the advice of a professional, ensure you have enough of a cash cushion, or at least develop a taste for ramen noodles in case your deals go south!
Visit MinneapolisLoftsAndCondos.com for a range of properties and information about Elliot Park Minneapolis homes. Our tailored market search can find you the greatest Minneapolis MN real estate.

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