2018’s Best Places to Flip Houses
Read the full article from WalletHub, here.
If you’re among the millions of HGTV viewers who’ve seen an episode of “Flip or Flop,” you’ve probably thought about the thrill of gutting a house and turning a five- or six-figure profit. But the process isn’t as easy as the professionals on television make it look. Any experienced home flipper would caution you that transforming a fixer-upper into a profitable property is a difficult process.
Ask the Experts
Flipping houses can be a tricky business, especially for novices. For insight on the house-flipping market and advice on choosing a good property, we asked a panel of housing and real-estate experts to weigh in on the following key questions:
- What are the most common mistakes people make when trying to flip a house?
- What is the best way to finance a flip? Should people try to go all cash or borrow?
- What types of people are typically well-suited for engaging in house flipping?
- What factors — financial and otherwise — should go into the decision of whether a house is a good candidate to be flipped?
- Is house flipping a contributing factor to the overheating of some real-estate markets? Should this type of business be more regulated?
What are the most common mistakes people make when trying to flip a house?
Underestimating the amount of time and the cost of making improvements to property. Often, flippers do not know the full extent of needed repairs and they take longer to complete than originally planned. The other common mistake is that flippers over-estimate comparable sales prices in an area and the amount of time that properties take to sell.
What is the best way to finance a flip? Should people try to go all cash or borrowing is the way to go?
If a flipper has access to cash he or she can reduce costs of acquiring a property since there are no financing fees or interest to pay on a short-term loan. So, paying cash can lead to more profits from the sale of a property.
What type of people are typically well suited for engaging in house flipping?
People with background in real estate, construction or general contracting, and knowledge of real estate law, and also people who have cash to purchase properties with.
What factors — financial and otherwise — should go into the decision of whether a house is a good candidate to be flipped?
Properties selling for under-market value that are located in high demand housing markets are good candidates for a flip, especially if they are structurally sound and just in need of cosmetic updates. A lot of times these are properties that are part of estate sales. A secondary consideration might be if a house is architecturally unique, but these are often the properties that can involve greater cost to renovate.
Is house flipping a contributing factor to the overheating of some real estate markets? Should this type of business be more regulated?
Yes, and no. In some instances, flipping can inflate housing prices, since flippers will invest money in older homes and update them, then charge more the property in order to earn a profit. But that really constitutes the upgrading of the property and listing it at its new value. If someone were to purchase an older house and then pay a contractor to renovate it, they would likely pay a similar amount of money in the end and have to own the house during renovation. When experienced flippers can do renovations in a relatively short period of time and flip a house, the net effect on the real estate market is beneficial. But, in many cases, inexperienced flippers take much more time than expected to renovate properties, in some cases years. This can take housing off the market for extended periods of time and reduce the inventory of property on the real estate market. The reduction in inventory can artificially drive up the cost of housing.