Aug 24 2009
Flipping Homes is Back in Vogue…
Buy Low, Sell High…
Flipping homes hasn’t been a topic that has been discussed much lately because the practice has all but dried up in recent years. Why? There are two elements that have to be present simultaneously for a flipper to be successful:
- Supply of low-priced homes to purchase (buy low.)
- Strong buying market (sell high.)
In the past few years, one or both of these elements have been missing, and consequently folks who were trying to flip homes often got left holding the bag at the end of the day. But that’s all starting to change, and the driving force behind it is coming from an unlikely source: the economy.
Auctions
Smart investors and contractors are finding that they can often get an incredible deal on foreclosed homes that are being sold at auction, often at steep discounts. And if you see the list of homes scheduled to be auctioned in San Mateo County every week, it’s clear there will be an ample supply of homes for flippers to choose from for quite some time.
Not all foreclosed homes are good candidates for flipping. After all, the normal requirements stiill apply when it comes time to sell the home: Location, condition, and price. If the home is in a bad location, or if it’s in a dilapidated neighborhood surrounded by other foreclosed properties, it’s going to be a tough sell, regardless of how nice the home looks after it has been refurbished. But with mortgages failing at record rates in all price ranges, inventory is coming up constantly in the better neighborhoods.
Turn and Burn
Depending on the scope of work to be done, a home bought at auction can be refurbished in as little as a few weeks. I saw one stunning example recently in Redwood City where the kitchen and bathroom were completely remodeled, new paint applied throughout the house, and the hardwood floors refinished — all in 3 weeks. The new house was stunning, and re-sold in less than a week with 3 offers.
Where’s the Demand?
As I have written about before, the sub $1M segment is red-hot right in many communities right now. With the conforming loan limits temporarily extended to $729,950 in most areas, money is much easier to obtain than it was when the limit was $417,000. Consequently, there’s a big supply of buyers already pre-approved in ranges between $500k and $1M, and they’re ready to buy. And the better the condition of the home, the more buyers will compete for it.
Good for the neighborhood.
The net result for the surrounding neighborhood is often positive when a home is flipped. Granted, it sucks in this situation for the person whose home was foreclosed. But when an neglected home is replaced with one that’s in much better condition and will likely sell at a higher price, it’s good for those homes that are nearby. Improving the appearance and value of a neighborhood is good for everyone.
Keep Your Eyes Open
If you’re looking for a starter home that’s in move-in condition, keep your eyes open because there are deals out there. I know of several contractors in the mid-peninsula area who are solely focused on flipping homes in this segment right now, and they’re putting some incredible 2 and 3 bedroom homes back on the market in the upcoming months.
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Unless you’ve been flipping real estate for a while or have a background in construction, then it’s a good idea to have a full home inspection. It may cost you a few hundred dollars, but will catch things that maybe you didn’t know to look for. When flipping real estate, it’s the “little” things that add up very quickly and can eat up your profits!