Flipping-Speculating or Investing?
By Bob on Jun 4, 2009 in Investing in Real Estate
Even if you have only a passing interest in real estate you have heard the term property flip or just plain flipping. At one time flipping had a bad reputation, because dishonest con men got all the attention. Some of these guys can still be seen on late night real estate infomercials. Then a few years ago rapidly rising housing prices made flipping a relatively easy way to make money. Flipping became so popular that it inspired several cable TV shows. As the real estate markets have tumbled so has the popularity of flipping real estate. Rather than build equity many of these amateur speculators lost a lot of money. So why talk about this strategy in this tough market?
It might surprise you to find out that there are people making money flipping houses these days. These flippers are no amateurs speculators out to make a quick buck, but careful investors with a plan and a back up plan. Today’s successful flipper is not a speculator who is willing to take on high risk. Today’s successful flipper is a cautious investor with a sound business plan. They are in the “business” of rehabbing fixer uppers and building equity. Whether you are buying a fixer upper to eventually live in or an investor hold your real estate to build long term wealth, good planning is a must. There are important lessons to be learned from the planning mindset of a flipper who must build equity very quickly in order to be successful.
Though a series of articles on this website, I’ll outline much of the planning needed to quickly and successfully rehab a fixer upper. You can successfully build wealth by buying and fixing distressed real estate.
Hi Bob, your expertise really shines through in this article. I personally have seen new life being breathed back into the “flipping market” by first time home buyers. With the new “hybrid” loans that allow you to finance both the home and construction costs…. flipping has been re-born. Do you have a plan for fist time home buyers who want to owner occupy use the tax credit to improve the property then re-sell ?
Plymouth Minnesota Realtor | Jun 8, 2009 | Reply
Thanks for your kind words.
To do a good flip you need to build a lot of equity fast. That usually means a major rehab that is difficult or impossible to do with the hybrid loans. The hybrids are great but provide limited funding. The new HOP financing could be used by a home buyer to do a bigger project. I have a HOP article in the works;-) Or you could visit Alec at the Mortgage Scoop to find out more about HOP: http://www.themortgagescoop.com/
Personally, I would advise first time home buyers to use the tax credit only as a back up if they can’t come up with enough funds to finish a project with a rehab loan. In almost every case people who do their first rehab run short of time and cash. A first time home-buyer/flipper should try and save their cash for the unexpected.
admin | Jun 8, 2009 | Reply