5 Tips for Would-Be Flippers
Lucky or smart? In the middle of the housing boom, lots of people (including women just like you) would buy properties, fix them up a little, and then sell them for a tidy little profit. Making money by buying and selling properties fairly quickly—say, within three years—is called “flipping.” And, in some areas of the country, it seems to be back.
“Hey,” you say to yourself, “isn’t the market supposed to have gone down?” In most areas of the country prices have gone down, but we’re still seeing some savvy owners bucking the trends and selling at new highs.
Flipping Over the Luxury Market
One of the most outstanding examples is in the luxury market: An apartment previously rented by Mark Wahlberg at 15 Central Park West, bought for $7 million four years ago—which was close to the height of the market—just sold for $16.5 million in March.
However, unlike the early 2000s, when flipping turned into a free-for-all (I even quit my job to try it and wrote a book about the experience) flipping is a little more targeted and restrained nowadays. At LearnVest, we don’t advise you to do this unless you are totally stable with your own income, have a decked-out emergency fund, a tolerance for high risk, a place to live, and enough cash reserves that you won’t need to borrow massive amounts of money to pull it off. But, if you’re contemplating a flip anyway (or are simply curious), know these new rules:
1. Figure Out a Way to Add Value
Buying low and waiting for the market to rise isn’t flipping, it’s gambling. Buying a property so you can renovate the kitchen or reconfigure the rooms such that the next buyer sees the space in a whole new way, is flipping.
2. Be Ready for Surprises
Sometimes older properties in need of a little TLC are the best flips; deep cleaning, new paint, and light renovations can often bring out the beauty in older homes. But, realize that properties that haven’t been well-tended on the surface also might not have gotten their quota of maintenance over the years. You might want to bring in an inspector to look at under-the-surface issues like wiring and foundations. You’ll also want to watch out for common red flags like signs of leaks. Finally, no matter how much homework you’ve done, prepare to find a surprise or two as you’re working on the property.
3. Think About the Next Buyer
You might want to pour money into a historic property to bring out its beautiful nineteenth-century details – but if the property is in a lousy school district, chances are that you’re not selling to a couple with kids, no matter how much they like wainscoting. Always think, “Who wants to live in this neighborhood and will pay for my improvements?”
4. Don’t Over-Improve
Go to open houses (or work with a real estate agent) to learn what’s on the market and what sells. If all the bathrooms in an area are tile with stall showers, think twice before you put in a marble bathroom with a jacuzzi tub. It won’t help you to have very refined tastes if no subsequent buyer wants to pay for them.
5. Prepare to Fail
One set of homeowners who got hit very hard in the downturn were flippers who expected to unload their properties in the next six or twelve months. Like players in a game of musical chairs, they were caught by surprise when the music stopped. Never undertake a flip without a “Plan B” of what you’ll do if you don’t manage to unload it.