Mortgage Blog

Is Flipping Houses a Good Idea?

Personal Finance

Flipping houses may look easy on TV, but there's a lot more that goes into this type of real estate investment. The process of flipping a house starts with buying a home below market price, renovating it, and then re-selling it for a quick profit. Anyone who has ever tried it will probably tell you that it’s a lot harder than it looks, but it can definitely be worth your while.

So where do you go to find houses to flip? Sometimes you can find homes to purchase from those who are willing, or need, to sell properties at a discounted price. The most common way is to attend auctions to bid on foreclosed homes.  Before you purchase anything, it is absolutely vital that you learn the technical skills necessary to restore a home. If you don’t know what you’re doing, you are only asking for trouble. Rehabbing without the proper knowledge will only lead to problems, and if you have to start outsourcing all of the work, it can become very costly. When purchasing distressed properties, take into account that you will likely have to deal with unforeseen problems, which means you’ll need to leave some extra room in your budget (we recommend 20%). If you plan on outsourcing help, the two most important roles would be a credible contractor to aid in the rehab process, and a great realtor to sell the property as soon as possible in order to keep financing costs down.

With the housing market picking up, it may be a good time to begin flipping houses, or to pursue a buy and hold method. If flipping a home seems like too much of a financial burden due to the renovation expenses, or the market isn’t where you want it to be, a buy and hold scenario could be a better fit for you. Rather than buying, fixing up and re-selling, you actually buy and then re-sell the house several months or even years later. Buying a property and turning it into a rental home may be a smarter investment for you, depending on the housing market in your area. A buy and hold strategy works best where the housing market is soft, and sitting on the property until home prices appreciate is a viable option. Renting out a home as a real estate investment helps pay down the mortgage, and helps build equity in the home. When the house begins to appreciate in value, you will see a greater return should you decide to sell the home.

What should you look for in a fixer-upper?

Location. If you’ve heard it once, you’ve heard it a million times: location, location, location! Find a fixer-upper in a desirable neighborhood or city. Decent Condition. Look for structurally sound homes with “good bones” so you don’t get yourself into a major overhaul, or even worse, a complete teardown and re-build. School District. Look for homes in decent school districts. Homes near good schools tend to sell more quickly. Manageable Fixes. It’s ideal to find a home with manageable update needs such as ripping out carpet, fresh paint, or fixture updates. Make sure you know which repairs you can afford to fix, and those that you can’t. Below-Market Value. To make money on your flip, make sure the price of the home is listed for less than its market value.

Whether you want to quickly flip a house, or have your eye on a buy and hold property, keeping these tips in mind will help you gain the biggest return on your investment. Doing your research before you begin can help ensure you have a smooth house flipping experience. It may be harder than you thought, but it can definitely pay off in the end. Good luck!