The concept of “flipping” – buying a property, remodeling it and putting it quickly back on the market to make a profit – has become well known through television shows like Flip This House. In 2008, with plunging interest rates and increasing inventory there will be great buys in many neighborhoods. But, buyer beware, flipping is harder than it looks.
FLIPPING CONSIDERATIONS
You make money on the buy. If you overpay for the property to begin with it is difficult to simply raise your price an equivalent amount on the selling end. You are likely to price your home outside the neighborhood's market and the home will sit for a long time.
Know your carrying costs. Of course you must know what your monthly payment will be including principal, interest, taxes and insurance. Also, include electric, water and other maintenance bills (don't forget the yard). If you aren't living in the home, factor in the time and transportation costs to maintain the property. Hopefully, before you purchased the property, a Realtor gave you a market analysis so you know how long a property in its remodeled condition will stay on the market. Be conservative, add a few months for a worst case scenario and be aware of the hot and cold seasons in the market.
Know your closing costs. In San Antonio, when you sell, roughly 8 percent of the sales price will be deducted from your net at closing for costs the seller normally pays including Realtor fees and a title policy.
Use a knowledgeable Realtor. Flippers hopefully have an eye towards their net at the sale. Some are tempted to try to sell their property by owner to save what they think will be a 6 percent Realtor fee. However, at best, a by–owner sale usually nets the seller only 3 percent more because most buyers have agents they want compensated by the seller. Also, statistics show that FSBO homes sell for far less and take far longer to sell. Usually they don’t sell at all and then a Realtor is called in to sell the property after valuable carrying costs have been wasted.
Be smart when skimping. The most common mistake is repainting the interior of the home but not retexturing. Flippers all think they can paint and save money so you end up seeing a lot of poor paint jobs that draw attention. A good retexturing (orange peel is safe) by a professional goes a long way toward giving a home a new feel.” The “do–it–yourself” concept usually hurts a flipper in the end. Unless you have professional skill, the job will end up looking amateur and buyers pick up on that. The homes that use good pros always sell faster and for more money. Usually it's worth it.
Don't forget the landscaping. Landscaping costs always scare people so they will leave it out. It's a big mistake. It has more influence on curb appeal than anything else. There are cost effective solutions like bright seasonal flowers and potted plants. Fresh mulch, though it can be expensive, makes a big difference.
Know the neighborhood and what buyers want there. In the older areas of town such as Alamo Heights, Terrell Hills, Olmos Park and Monte Vista, flippers often go wrong with finishes. People will rip out a tile they think is a dated color like pink, black or mint green only to install a generic ceramic tile in beige, gray or brown. Though functional, these tiles seem out of place in an older home and more appropriate for the newer areas of the city such as Stone Oak. The same goes for glass block. There are new choices such as the octagon and dot tile that give a fresh feel and a vintage look.
Be aware of the appraiser. An appraiser will be sent in by your buyer's lender to evaluate your home and make sure that it isn't out of line with the market. If the home appraises for less than the sales price of the contract it often destroys the deal and leaves the seller desperately hoping to find an all cash buyer (rare these days with money still cheap) where an appraisal is not required. So, when you decide on what your future marketing price will be, have at least one but hopefully, three recent sales in the neighborhood that are near your dream price. Again, your Realtor should advise you on this.
Be conservative and resourceful. There are many people trying to make fast money on flips. If you are looking at a home to flip that is actually on the market to the public you need to analyze why someone else didn't take a chance on it. That's why it's almost essential to find homes before they go on the market. Use your friends, neighbors, relatives and your Realtor for this.
Adjust your expectations. Flippers have inflated ideas because of media hyperbole and urban myths – of their return. You are not going to make $80,000 on a $30,000 investment. But, what if you could make $20,000 for two months of work that hopefully was interesting and educational? There is nothing wrong with that. Be realistic and it can be profitable and fun.
