HGTV—among other television networks, such as A&E—has been host to a handful of property flipping series; however, reality often differs from reality television (especially when it comes to home improvement).
“Every deal starts with research and ends with a profit or loss,” says Lily Leung, a reporter for the San Diego Union-Tribune.
Have you considered purchasing a house to flip? Buy low, fix up, and sell high—what’s there to lose?
Here’s a dose of reality: Property flipping is not as simple as it appears on television.
Property Flipping 101
So, what is property flipping? Residential redevelopers—typically investors—buy unfashionable and problem-ridden homes in neighborhoods expected to appreciate in value, fix them up, and sell them for top dollar.
Most Americans know and love shows like Flip or Flop, where the show hosts purchase unattractive homes, fix them up, and sell them for 100k-300k above the original purchase price.
If flipping houses were that simple, everyone would be doing it. Today’s housing market favors the seller—demand for homes is exceptionally high, and inventory levels cannot keep up, which results in higher home prices (that are only expected to increase in 2018).
Finding homes to renovate is difficult. Difficult, yes, but investors can still find distressed properties and motivated sellers. Quality marketing and persistence are keys to winning.
Working with a real estate investment and Realtor firm is a sure way to locate a potential high-profit flip. Realtors keep themselves up to date on market trends and median home prices so that you will remain “in the know” during the entire home finding, buying, and selling process.
Reality TV vs Reality
Reality TV shows display:
- Quick turn-around times
- Easy returns on investments
- An easy profit of 30k or more
- Simple DIY renovations
- Buying low, fixing up, and selling high
Reality television sucks the real out of reality and provides its viewers with a simple and easy rendition of property flipping. In fact, quick turn-around times are dependent upon the effectiveness of your “property flipping team”—which can include yourself, your Realtor, a hard money lender, and a handful of professional and licensed contractors.
Property flipping can provide you with a return on your investment; however, it is far from an easy gain if you do not have an efficient and effective team behind you. Even so, flipping a property is not for the weak-hearted.
In Reality TV, flippers seem to profit $30k at a minimum. Your profit depends solely upon the original purchase price of the property, the cost of materials, the cost of labor, the new list price after renovations, and the closing costs of the flipped property once it sells. It is important to remember that no two flips are alike—some will profit more than others.
The renovation budget will rely mainly on the square footage of the property as well as latent defects that may reveal themselves during the demolition and renovation process. DIY renovations, while promoted on reality television, are not recommended.
We advise not to do it yourself.
Work with licensed contractors who pull permits that perform quality work at a reasonable price and with Realtors that know your local housing market. Hiring licensed contractors and a Realtor who is familiar with the market will smoothen the inspection and appraisal process.
Buying low, fixing up, and selling high is possible; however, if your property is priced too high for the neighborhood, the likelihood of it selling for top dollar decreases. Sometimes with flips in today’s housing market, the appraisal will come in lower than asking price. It is increasingly important to work with a Realtor who is up-to-date with local on the rise neighborhoods and who is no stranger to performing a CMA (comparative market analysis).
Home prices are expected to steadily increase as well as the demand for new and resale homes.
“San Francisco had the biggest yearly price increase in California, 9.1 percent, but San Diego outpaced Los Angeles, which had a 7 percent yearly increase,” says Philip Molnar, contact reporter for the San Diego Union-Tribune.
Property flipping, as seen on TV, can be done. However, you must set yourself up for a profit rather than a loss.
4 Ways to Set Yourself up for Success in Property Flipping
- Familiarize yourself with your local housing market.
- Take note of trends (tip: tour new homes to stay up to date on “what’s hot” in the housing market.
- Work with a local and trusted Realtor or real estate agent.
- Find a team of licensed contractors to perform renovations on your flip (tip: shop around for the best estimate—don’t settle). Your Realtor may also be able to recommend trustworthy contractors with whom they work.