Flipping Nets Big Profits

By Mike Colpitts

Flippers who specialize in buying and repairing homes and then quickly re-selling them for a profit are Before Rehab purchasing them at foreclosure auctions and netting big profits, despite the down real estate market.

Thanks to dozens of websites and A&E’s “Flip this House” TV show flippers have attained a serious reputation, and you can find a ton of information on the web on flipping homes, join a forum, find where to buy supplies at a discount and how to become the next millionaire flipper.

What has been a dream for millions of TV viewers, has transformed to a passion for others. But even flippers today say they are running their enterprises differently than they did during the housing bubble, and many are paying cash for the homes they are purchasing since it’s harder to obtain financing.

Flippers in the booming real estate market bought homes under market or condos before they were even constructed, held on to them for a matter of days or months and sold them for a tidy profit. Today neither the market nor selling homes is that fast and there are fewer buyers around to pick up the deals. The craft has changed taking on a different form.

Peter Pasternack

Over at A&E flipper Peter Pasternack offers 10 tips of advice to wannabe’ flippers, including: “Absentee management doesn’t work. You must be on the job site to monitor the work being done.” And another bit of advice, “Flipping houses is a business. You have to make money to stay in business.”

In fact, for every flipper who tries to make a profit it’s not difficult to believe that there’s another who over-invests and doesn’t make a cent. Pasternack says that you should put “your budget down on paper…Understand all the costs involved in the transaction. These include interest, repairs, closing costs, holding costs and sales commission.”

However, conventional home purchases allow buyers to fully inspect a property prior to making a purchase, but often buyers bidding on auctions don’t get that luxury. Sometimes they are only able to see the exterior of a home before making a bid to purchase. At other times they are able to study the chain of title to determine ownership history, taxes that may be due on the property or other debts. It’s not unusual for flippers to spend 60 hours researching a property before ever making a bid at an auction.

after Rehab

Competition among bidders and flippers on the best properties price some out of the market. Auctions usually require at least 5% as a minimum to hold a property and then full payment within 30 days. Some auctions require payment in full by the end of the day. Neither financing nor any other contingency is allowed.

Flippers try to purchase homes that need as few repairs as possible, and stick with cosmetics like paint and carpet. A heater being out of working order or a damaged roof could cost a quick $5,000 to fix.

Flipping homes isn’t for the faint of heart, but it can pay returns that are netting some flippers a tidy profit. “It’s kind of like gambling,” said Dan Wheeler of Nashville, who is on his fourteenth flip. “You have to be willing to due a lot of the work yourself and have a handyman or contractor who’s willing to work for a reasonable price. Anything else is a recipe for disaster.”