House flipping, the practice of buying investment properties and quickly reselling them for a profit became very popular in the early 2000s. Investors purchased homes in need of repair at lower-than-market value prices, fixed the problems in the home and then sold it for a profit. Although the term “flipping” was fairly new, the practice of buying and reselling houses as an investment has been in practice for many years.
Period of Unprofitable Flipping
Unfortunately, reality shows such as “Flip This House” and others made it appear as if house flipping was easy and extremely profitable. This led to a considerable number of people entering the real estate investment market attempting to flip houses quickly at tremendous profits. Many of those who entered the house flipping industry overlooked the basics in real estate investing and lost a considerable amount of money.
There are several common mistakes that people make when they decide to start investing in real estate, whether it’s to flip a house or commit to a long-term investment in rental property. The first is lack of adequate funding. Although some homes, especially those that need improvements, are offered with low or no money down financing terms, those deals are not easy to find. In addition, if you’re financing the purchase, you’ll be paying interest until the home is sold. In order to make a profit, the purchase price, cost of renovations and any additional costs, such as interest or taxes, must be less than the sale price for the home. It also takes time to perform the renovations, which may also include a need for building inspections that must be scheduled, as well as the time it takes to sell the home. You also need to be able to perform much of the work yourself as hiring professionals will significantly reduce your profits.
RealtyTrac released data earlier this year that indicates home flippers earned a 30 percent gross return on investment in the first three months of 2014, one of the highest levels in years. The best market for flipping a home was in Pittsburgh where the return on investment was an average of 89 percent. Philadelphia-Camden-Wilmington was the second best with a 56 percent return on investment. Experts say that a more stable housing market, slower new-home build market and fewer total home flips have led to the increase in profits in 2014. However, not all markets fared as well for house flipping. Indianapolis, for instance, showed a -12 percent return on investment for homes flipped in that area, while Tampa-Clearwater-St. Petersburg showed return of investment of -11 percent. However, experts caution that some markets had relatively few flipped houses and the cost of renovation was often not included in the data.
Although flipping houses can be hard work, if you have knowledge in construction, carpentry, plumbing and electrical work, you can earn good profits on real estate investment of homes that need repairs. According to this website, funding is available for those who are interested in entering the house flipping or other real estate investment market.