How Does House Flipping Work?
Basically, house flipping is buying a house with the intention of selling it for a profit. That may sound simple but the logistics can actually get complicated. There are a number of decisions that have to be made from the very beginning. For instance – where should you buy? If you buy a house in a neighbourhood that is considered up-and-coming, you are banking on that neighbourhood gaining a higher value. If you choose to buy in a new development, you’ll have to work on attracting higher-end home buyers who are looking for luxury features and space that is offered in the suburbs. If everything goes as planned, you can really make a nice profit. But if something goes wrong, like inaccurate budgeting, timing problems, or even a crime rate increase in your area, you could be stuck with that house for a while.
House-flipping greatly depends on the real-estate market, which can be cyclical. As you can expect, during a real estate boom, flippers do have the upper hand and they can even name their price in some areas. However, during a slow period, their fixed-up homes can also be on the market for several months.
Once you figure out where you want to buy, the next thing you need to decide on is the type of property you want to buy. If you choose a fixer-upper, you have to fully commit to improving the home, which can take a lot of your time and money. On the other hand, a foreclosed property that you can buy in a bank auction can mean a really underpriced property. But do be careful. If the previous owners couldn’t afford the mortgage, there’s a big chance they couldn’t pay for maintenance, either. You might have to deal with various problems like a leaky roof or pest infestation.
Don’t think that you can only flip fixer-uppers or foreclosures. It’s possible to flip a house without having to do any work at all. In fact, you can flip a new home. However, your options will be limited to what’s being built in the area, especially in housing developments. There are also communities that require buyers to live in the house so their community won’t be a “ghost town”.
Once you have decided on the kind of house to flip, you need to choose the neighbourhood. You really need to do your homework here. Investigate the area, check recent sales price, and if you can, find out if there are any other flippers with empty houses.
Many think that you are crossing a moral line if you choose to flip a foreclosure. But really, you are not. When you buy a foreclosure which is, of course, a home someone else couldn’t pay for, you reduce the supply of available house in the area. That means you are actually making everyone else’s homes more valuable!
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