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What Does “Flipping A House” Really Mean?

By Mike in Downtown San Diego Real Estate with 0 Comments

flipping_housesAs a buyers agent, it’s becoming more and more common for my clients to ask about what it would take to start “flipping houses.” Flipping a house is generally considered to be buying a fixer-upper type (usually a distressed sale) home for well below market value, doing the necessary repair work/upgrades, and then reselling for a profit. While this process sounds pretty straight forward, there is a lot that goes into a “flip” that you need to be aware of.

1. Multiple Offers

Usually, when buying a distressed property (Short Sale/Bank Owned REO), there is a lot of competition from other investors. Investors bring all cash offers with quick closing times to the table. These favorable terms often mean that a “normal” buyer will have no chance at the home. The presence of “multiple offers” can also trigger a “bidding war” in which investors will offer above the list price in order to secure the deal.

2. Hidden Work

While you can determine from photos and open houses what kind of cosmetic work needs to be done, it takes a full property inspection to uncover “hidden work” that can devastate a repair budget. Leaky roofs, termites, dry rot, and a cracked foundation are all examples of “hidden work” that could be uncovered during a property inspection. The problem is that you cannot perform a property inspection until after you’ve been selected as the highest offer.

3. Resale Comps

Even the most beautifully remodeled home will sit vacant if its overdone compared to its neighbors. One of the most famous rules in real estate is, “Look for the cheapest home in an expensive neighborhood.” Too many people flipping a house do the opposite and do an expensive remodel to a home and try and resale in a neighborhood that doesn’t support its value. Therefore, making it the “most expensive home in a cheap area.” Make sure to look at what has sold on the same, or neighboring, streets within the last 90 days. “Model Matches” (same Bd/Ba/Sq Ft) are the best comps.

For more information on flipping a house, or if you’re looking for information on distressed properties in San Diego, feel free to contact us anytime. ')}