When your cab driver starts telling you about how much money he made with his last house flip, it’s time to get a little concerned. When this is combined with increasing weakness in the U.S. property market, it is time to have serious misgivings about trying to flip a house yourself. But does this spell the end for the practice of buying a property, doing a quick makeover and putting it straight back on the market?
For most people, the answer is “yes”. Despite the fact that so many people have made money with this practice in recent years, the key to their success has had more to do with a very buoyant property market than skillful buying and selling and cost-effective home improvement. In a rising market, you are likely to make at least some money even if your flipping house skills are not that great.
The real problems only make themselves apparent when the market has gone flat, or even worse is declining. This is when house flippers can take a financial hit, if they have committed one of the cardinal sins such as paying too much for the property when buying, spending too much on improvements, or undertaking the wrong improvements. When the market was buoyant, these ‘sins’ were often covered up by the rising market.
So does that mean no-one should try flipping houses any more? Not necessarily.
One thing to remember about the housing market is that the market is not always moving in the same direction all over the country. For example, even when the real estate market is bubbling along, there can be smaller cities that are taking a ‘hit’ because of the closure of a major employer in the area.
Conversely, even in a flat market nation-wide there will be pockets of growth, for example where a new university is being opened or a new freeway opens up outer suburbs to commuters. If you do your research properly, it is possible to find these niche areas and take advantage of them when many other investors have shifted to other asset classes such as the stock market.
Another factor is that there is always a ready market for well-presented and renovated properties. While many people fancy themselves as make-over kings or queens, the reality is that people are increasingly time-poor and would rather spend their diminishing spare time on family or leisure pursuits rather than on the end of a paint-brush.
There is still money in house flipping. It’s just harder to find, and requires real discipline on the part of the house flipper through the whole process of researching the geographic area, selecting the right property, deciding which improvements to undertake, preparing a budget, and managing the whole process in an efficient manner. Doing your homework properly is now crucial to producing a successful house flip rather than a financial flop.
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