Good News If You Are Flipping Homes

The good news part of this article is about reducing your competition due to articles that scare people away from flipping. If you’re not already flipping and the information in the USNews article doesn’t scare you, that’s also good news. Here’s the first sentence from an article titled “What You Should Know Before Dipping Into Home Flipping”:
Don’t expect to make a quick and easy buck buying, overhauling and then reselling houses.
There’s no argument with the fact that it isn’t easy, as few things that are rewarding ever are. We also know that the flipping TV “reality” shows are not as “real” as many believe. In the course of an hour-long show, homes are located, purchased, renovated and sold at six figure profits in many cases. We wish them well and hope that some of that great luck and skill will rub off on us plain folks.
According to RealtyTrac, investors flipped 156,682 single-family homes in 2013. RealtyTrac defines a flip as a home bought and sold twice within six months. This number of flips represented an increase of 16 percent over 2012, and up 114 percent from 2011. According to the RealtyTrac information, the average difference between the first sales price and the second was $58,081. That’s not profit if any work was done, just the difference in sold prices.
In a bit of the obvious, the article gives us four challenges faced by flippers:
1. Locating homes at deep enough discounts to do the work and sell at a profit.
2. Finding reliable and economical quality contractors to do the work.
3. Financing the deal.
4. Selling at enough of a markup to pay expenses and justify the time and effort.
Some wannabe flippers underestimate the cost of rehabilitation of the properties, and far more of them underestimate holding and financing costs. Another frequent pitfall is overestimating the ARV, After Repair Value or missing the market. Hard money and transaction lenders are soliciting business, but the costs are significant. High fees and interest rates add a significant percentage to the deal’s cost basis.
Generally, anyone thinking of flipping, and with little prior knowledge, could be pretty discouraged by this article. We’re back to the good news for investors who want to flip houses or are already involved. Articles like this keep the inexperienced away, particularly those who may overpay and take otherwise viable properties away from us.