Does Flipping Houses Really Work?

In the 90s and early 2000’s, flipping houses seemed like a really good idea and a way to make fast easy money if you knew what you’re doing. Now that the housing bubble has burst, and were in the middle of a nationwide housing crisis, it seems like flipping houses isn’t really feasible. But surely there are people out there that are still making money from buying a house cheap, fixing it up, and selling it. Let’s see if this is something that can still be done at this time.

Overview
The concept behind flipping houses is basic enough. It’s the simple notion of buying low and selling high. You find the house that you believe is undervalued, buy it at a low price, make improvements on it if necessary, and then resell it at a higher price keeping the difference for yourself.

There are two schools of thought when it comes to whether or not flipping houses is still a workable business model in 2012. The first theory is that with so many people behind on their mortgages and upside down on their homes that this is easy pickings for buying up real estate on the cheap. The second theory is that no one is buying houses right now so even if you find a bargain you won’t be able to offload it and collect your profit.

The Claim
The claim made by most people that favors plenty of money in flipping houses is that this is relatively easy to do. They also claim that you make big fat checks in lump sums. When people hear that they can make $20,000, $30,000 or $50,000 all at once, their eyes roll back into their heads and their pupils become dollar signs. For many people $50,000 represents a year’s worth of work or more, and to be able to get it all at once send them into a frenzy. This is what the real estate gurus that sell programs are hoping for.

The Hype
The hype comes mostly from real estate gurus that try to sell their house flipping guide to unsuspecting wannabe entrepreneurs. They exaggerate just how much money you can make from this, and they downplay just how much risk is involved. They talk a lot about using other people’s money to fund your deals, but with the credit crunch going on, who can find these lenders? They also don’t give a lot of attention to how hard it will be to sell a property once you bought it and fixed it up.

The Cost
The costs to get started in flipping houses can be pretty high. Most gurus will tell you to just borrow the money since you’ll be getting it back in a short period of time. That might have been easier to do when the economy was great, and lenders were giving money to basically anyone that applied. It’s a little harder to borrow large amounts of money, especially when real estate is being used as collateral, and the real estate market keeps trending downwards in most areas.

The Commitment
You definitely have to stay committed if you want to stay in business as a house flipper. You also have to have nerves of steel because if anything goes wrong you could be stuck paying two mortgages, property taxes, and upkeep for the property. When you get into the the business of flipping houses, you have to stay committed to each house from the time that you buy it until the time that you sell it. This can stretch weeks, months, or years, and can separate those that are serious from those that just wanted easy money.

Evaluation
No one can deny that on paper the math looks good on flipping houses. You’ll always see examples that make it seem very easy, like buy a house for $100,000, put $20,000 into repairs, sell the house for $150,000, and keep $30,000 profit for yourself. However, these examples are oversimplified, and they don’t shed light on how you come up with a $100,000 in the first place, how you find the home that is priced $50,000 under market, and how you find the extra $20,000 to make the repairs with.

The reason this sounds appealing to most people is that you don’t actually have to do much of anything yourself. Finding the deal is pretty much all you have to do. Since you pay other people to make the repairs, unless your do-it-yourselfer or Mr. Fix-It, all that seems like you would have to do is make a few phone calls and sign a few papers, and voila, you just made a big chunk of cash.

Final Flipping Houses Review

Flipping houses may have worked in some areas, for some people, about 10 years ago. Nowadays, only those that have a very strong business model, and a lot of start up cash should venture into this endeavor. Unless you are a super savvy real estate investor that knows exactly how to find

bargain-priced houses, and knows contractors that will do a good job at a low price, and also knows how to move real estate in a down market, you’re better off getting into something less risky.

Our Recommendation
We’d all love the giant paychecks that supposedly come with flipping houses. Lord knows I would love to get a $30,000 check with no heavy lifting involved. However, you have to be realistic and look at all sides of the story. It’s not impossible to make money flipping houses, but the barrier to entry seems to have raised in the last 10 years.

If you’re still passionate about becoming a house flipper, start getting educated on the real estate market in your area. The first thing to becoming successful at flipping houses is being able to find a house that is priced very low, either through a foreclosure, or a short sale. Once you become an expert at finding these diamonds in the rough, the rest of the process is easy enough to go through. Also, it would probably be a good idea to make friends with a real estate agent that can help you sell when the time comes.

What do you think? Does Flipping Houses work or not?