If youve ever been awake in a zombie-like state in front of the tube at 3:30
a.m., youve probably seen infomercials claiming you can get rich quick with
real estate. These programs are filled with promises of talking sellers out of
their homes for next to nothing, buying property with no money down, and getting
someone else to pay your closing costs. While its possible that the investment
methods these programs push may be the real deal, most are scams that should
raise instant red flags for investors.
But the lines get blurred with the entrance of a new batch of real-estate
investing programs. TV shows such as TLCs Property Ladder, A&Es Flip This
House, and Discovery Channels Flip That House, feature sellers who buy,
renovate, and resell properties in order to turn quick, and often large,
profits. These reality-based programs arent trying to sell you anything,
typically present the good with the bad, and air during the day--winning instant
credibility in comparison with late-night infomercials. But if youve learned
anything from infomercials, its that if something looks too good to be true,
its best to proceed with caution.
"House flipping is not something to be entered into without a lot of thought,
planning, and research," says Bill Golden, an Atlanta-based real estate agent.
"As satisfying and profitable as flipping can be, it also can be devastating to
someone who doesnt make informed decisions."
Golden has more than 20 years experience in the real estate industry, and
understands the flipping scene from his own practice. His first flip was a
breeze. Before he had done practically anything to the house, someone made him a
deal awarding him a substantial profit. But he quickly learned that all flips
arent created equal.
Pay equal attention to the outside and inside of your
house. You cant show off the upgraded kitchen and bath if potential buyers
wont get out of their cars.
"The worst was a house that just seemed to be cursed," says Golden. "It had
fleas, rodents, and a cat-urine smell I couldnt get rid of. A huge oak tree had
fallen from the yard all the way across the street. And the first buyer I had
for the resale backed out of the deal for no reason at all. I eventually did
resell the house, but, had that been my first experience with flipping, it
probably wouldve scared me away."
Smart starts for buying flippers
Before you can make a flip, you must
purchase a house. If youre interested in flipping properties, theres a lot to
take into consideration. Golden suggests you:
"Most importantly, get the professional opinion of a neighborhood-specific
realtor on the potential property as well as on exactly what youre going to do
with it and at what cost," says Golden.
Dont forget about foreclosures
Flipping is most profitable when you
find a house at a great price. While thats not always possible with homes on
the regular market, foreclosures can open up some advantages.
"Foreclosures may allow you to get into a house with no money down or by
assuming the homeowners mortgage," says Denise Evans, author of
"How to Make Money on Foreclosures." "Some lenders
may even provide a moratorium on payments--say three or four months--in order to
allow you to use the money to fix up the home."
"A person is most successful when buying a foreclosure for his or her
personal residence," says Evans. But remember, a foreclosure that may be
profitable to you as the buyer is rarely a win-win situation. Your bargain is
someone elses loss.
Flips that flourish
Youve worked hard to find the perfect property, but
now its time to get down to business. "One of the biggest mistakes that people
tend to make is buying and renovating to suit their own personal needs or
tastes," says Golden. "Your end product needs to be attractive to as many people
as possible." Here are some tips to help your property appeal to more buyers:
Factor in not only renovations but also how much it will
cost to carry the house--pay the mortgage on it--before it sells.
- Define who your target buyer is and what he or she would expect or want.
- Research trends in home decorating and design.
- Pay equal attention to the outside and inside of your house. You cant show
off the upgraded kitchen and bath if potential buyers wont get out of their
cars.
- Select neutral colors for paint and appliances.
Is flipping right for you?
This is a question only you can answer after
careful research. Remember that theres more to consider than just the acts of
buying, renovating, and flipping a property. You also need to factor in:
- The amount of time this investment may take. Will you be able to turn the
property around in a profitable time frame?
- The money involved. What will not making a profit or, worse, losing money,
do to you financially? Will you be able to bounce back quickly?
- Tax implications. How much of your cut is going to Uncle Sam? Have you
discussed this investment idea with your accountant or financial adviser?
Flipping homes is a risky investment but also can be very rewarding. Only buy
in to the idea if you know you can make the sale.
