Flipping Houses Today – Successful Company or Dangerous Sport?

We are constantly being bombarded with negative news in all areas of life. In real estate, the media has been hammering us with constant news about falling prices, rising foreclosures, financial chaos due to overzealous lenders making stupid loans, and a possible recession. In fact, the media makes you feel like prices are going down across the country and half of us are losing our homes. Not so! Given all this negativity and downside risk, can you succeed in real estate investing, specifically renovating and remodeling homes? If you can! However, depending on which part of the country you live in, you will most likely have to operate differently today than you did last year.

So how do you successfully trade homes in this volatile real estate market?

In areas where prices are still falling and are expected to drop over the next year, such as many areas of California and Florida, you have to be very careful. You cannot project an accurate market or post-repair value after your rehab is complete if you are in a market where prices are still declining. And knowing your ARV (after repair value) is critical to projecting your costs and calculating your potential profit. Also, you will likely have strong competition to sell your flip, as many homeowners and other real estate investors will market their homes.

In my market, Raleigh, NC, we’re still in pretty good shape. Seasoned pinball machines still work very well and have done so without missing a step. However, we have an oversupply of homes on the market and face the same challenges of finding qualified buyers in today’s mortgage market. So I would be more cautious than in a strong selling market, especially if you are new to flipping.

In a stable market, add a few more months of holding costs, as it will likely take longer to sell. Remember to factor in the possibility that you may have to lower your price or offer incentives to a buyer as well.

What about that declining market? You may be in a declining market, but how about looking 45 minutes to an hour away? Take a map and draw a circle to cover areas an hour away. Research those areas. If you’re still not comfortable with what you find, try an hour and a half away.

Could you flip more easily in another area? Do you have a family member you could stay with in exchange for your help to repair their house? It could even be in another state. Just make sure if you have a family you can come home from time to time.

Six months to a year could make a big difference in many markets. Once the dust settles, you can go back to your original area and flip again. In fact, it may be even better once it returns, as many pinball machines will have gone out of business.

In our ever-changing markets, it’s more important than ever to continue learning how to improve your business and investments. Education is key to success. You will also have to learn to think outside the box and be creative. Those are good skills to develop in all areas of life, as well as real estate.