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Is This a Good Time to Jump Into the 'Flip' Market?

Looking to play the role of fixer-upper in today's real estate market? Make sure you know what you're doing first.

Is this a good time to jump into the “Flip” market?

In the last few months, I have received a handful of inquires from readers asking my advice as to if this is the right time to get into the “Flip” or “Spec” market, which entails buying a home, fixing it up, and then putting it back on the market, hopefully for a profit.  

One of the biggest reasons that people are looking to get into this flip market is because the current inventory of homes for sale is very low. A lot of the homes that are on the market right now have not been upgraded. 

The homes that are on the market right now that have been updated are selling very fast and they usually are selling for a premium.

The first thing that I need to know when I get these questions is, what type of experience do you have with construction?  If the answer to that question is not much, then I tell them to not get into this business. 

There are so many contractors and investors out there who have their own crews that are looking for the same type of “fixer upper." The experts can do the remodel for a lot less money than you can. Therefore, when it comes to selling the property for a profit, what you pay for the property and how much you spend to fix it up are the only two factors that are involved when it comes to making a profit or losing money on the project. 

Remember, when you go to sell the property, the value of the property has nothing to do with how much you have spent, the value of the property is worth what a buyer will pay you for the property. I have too many times seen people lose a lot of money because they cannot sell the property for what they thought they could sell it for. This is not a business for part timers.

If you do have experience with construction, make sure that you don’t cheapen out when it comes to the quality of materials and the quality of the construction.  Buyers today are not stupid. Most buyers will hire a professional home inspector to go through the entire house once they have put the home in escrow.

If the home is done on the cheap end, then it will be discovered and the buyer will usually either cancel the escrow or ask for a credit to fix the problem. 

Again, I see it happen all the time where a “spec” house uses the cheapest materials and the cheapest appliances and those properties sit and sit on the market. Buyers know that if what they see is on the cheap end, then what they can’t see is probably even cheaper.

If you are going to be in this flip market have the pride to do the project as if you were going to live in the property. 

Also, make sure that when you purchase the property that you have consulted with a professional realtor that works in the area that you are buying in. Make sure that they provide you with a detailed comparative market analysis of what the property will sell for when you are finished. Do not get their opinions, get their comps. Make sure that you have the real estate professional put their price in writing. 

Lastly, make sure that you go out with your realtor and see what is on the market in the area that you are buying in to see what the competition is.

Bottom line is, if flipping homes is not your business, you can get burned and lose a lot of time and money. If flipping is your business, then do your homework and provide a great product that you are proud of and you should be able to turn a nice profit in today’s market.

Happy hunting.

Any questions of comments please contact Matt Epstein from Prudential California Realty at somatt@aol.com or (818) 789-7408.  Matt Epstein is considered the expert for real estate sales in the South/East San Fernando Valley.

Barry Weiss, MBA November 21, 2012 at 06:47 AM
Great advice, Matt!

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