It’s no surprise that inventory levels of starter homes are at all-time lows. Real estate investors who flip houses may just be the last stop option for first-time buyers who want to qualify for and purchase quality homes at an affordable price. If you’re a real estate investor, you may just be able to kill two birds; help home buyers sell, and make a tremendous profit!
Who are “house flippers?”
Who, exactly, are house flippers? Simply put, these house flippers are real estate investors who purchase homes with the sole intention to fix and re-sell them on the market. House flippers actually may be the only chance that those looking to purchase a houses at an affordable price have. There has been a trend in the market brewing for several years that could potentially alter the course of the housing market permanently. This article will shed some light on eye-opening information that affects both real estate investors and first-time buyers.
The average first time homebuyer
Due to the fact that builders are being priced right out of the real estate market, finding an affordable house for the average United States family is about to change dramatically. For example, when a home builder begins building, many expenses go into it, and they aren’t cheap. Labor, materials, cost to purchase the lot, and even government expenses have risen significantly.
What, exactly, are the government-expenses involved? These costs include any government-related costs, taxes, or inspections. You can expect these costs to remain predictable, no matter whether you are building a large or small home. Generally, government costs come in at 20% of the overall building cost.
If these costs are the same for every house, a builder is going to want to build the most expensive home. This is because the only way to increase profit with rising costs is to increase the sales price of the house by selling to a different demographic. What does this mean? This means that builders are pricing their homes out of the first-time homebuyer market. This means fewer new homes being built that the average homebuyer is able to afford. The result of this trend? A huge drop in affordable housing inventory over the years.
Stepping out of the stereotype
There has always been a negative stereotype against real estate investors providing housing for first-time buyers for quite some time. The average first time homebuyer usually has a pretty strict budget. This means that they are unable to purchase a home that needs any fixing-ups, as any issues with the home could devastate them financially. Usually, all they are able to afford at the time are the current expenses, not any unforeseen ones. The reason that house flippers get a bad reputation is that many of them cut lots of corners when building. They’ll use cheap materials, and the house will fall apart after some number of years in the near future. They cover up mistakes and serious internal issues with cosmetics.
To overcome the stereotype, you’ve got to provide quality housing
It is very important that flippers provide quality housing. The reason investors get a bad reputation is that oftentimes, they do cut corners as described above. Buying a flipped house is often a first time homebuyers only option if they want to own. If you are an investor, realize that while this is a great opportunity, if you cut corners you eventually will lose. Word will spread over time that the quality of your constructions is poor.
Again, house flipping can prove to be a wonderful opportunity and as the amount of first-time buyers is rising, you’ll have a pretty good advantage on the market. Not only can you make a great deal of capital, but you will also be helping out new buyers. You also have the ability to really turn around a neighborhood, making un-safe areas safe again. Keep in mind that you’ll make more money by flipping larger homes rather than smaller ones.
Current market for house flipping
No matter what changes come in the future regarding real estate, the house flipping market is only going to grow. Why? Well, the reason ultimately is that these flipped homes are affordable. Interest rates are so low at the moment, that there is a much higher demand for single-family homes than ever before. This is where you, as a real estate investor, step in. Your job is to provide affordable, high-quality homes to first-time buyers. Just be sure that you never cut corners like many of the investors out there do. It will come back to bite you in the end. If you want the existing stigma regarding house flippers to disappear, you’ve got to be a part of the change. Be the investor that changes neighborhoods, and provides first-time buyers with a new, affordable home to start their lives.
Flipping houses poses a big personal risk
As an investor, flipping houses can be pretty risky. If you don’t do your homework like you should have on a specific property, you could end up with some really expensive fixes that you didn’t plan to have to perform. And we mean big. Maybe the house needs an entirely new roof or plumbing system. There are may instances where an investor loses money on a property; it’s usually by not doing the research.
If you want to flip a house in a particular area, wait a little while. Don’t jump in. Why? You’ll want to look for and study how the same homes in that area vary in size, square footage, room count and improvements. Watch how long they are listed for. Watch how many times the price is adjusted, and what it ultimately sells for. You’ll thank yourself for this later. Never just blindly jump into a property without knowing how the other homes surrounding it are doing.
How to find out detailed information about a property
You can find so much information online that it’s really breathtaking. Real estate investors didn’t have immediate, public access to this kind of information until very recently and now we do. The younger investors probably a little more than others. For the older investors, you remember what it was like! Be sure to utilize the internet and real estate iPhone apps to help you search and research houses.
When searching for a good deal, look for neighborhoods where things have improved and are being built. Things like easy accessibilities to public transportation or highways. Of course, never purchase a property that is located directly near a highway or an airport. If you do, good luck in terms of selling the place. As a general rule of thumb, don’t purchase a house flip in an area where you can hear the traffic while you’re watching television in the living room.
Be very wary of house flipping tv shows; they are not accurate
That’s especially true with shows that follow house flippers, home remodelers and real estate agents. These processes are usually drawn out, tedious and not very fun to watch, so some liberties are taken during production to make the show interesting to viewers. Television networks are notoriously guilty of misrepresenting house flipping, and it has no doubt led to some false ideas getting into our minds.
Some viewers have criticized the show for misrepresenting the costs required in renovations, unrealistic home sale and purchase prices, staging the auction scenes and depicting a couple that mostly only deals with capital. Their contractors are the ones getting their hands dirty, which is a luxury many house flippers can’t afford. The biggest complaint of all centers around the fact that the couple almost always turns a handsome profit, which any experienced house flipper will tell you isn’t necessarily true.
Are these shows educational?
You could argue whether house flipping shows are educational or not, and in many cases the shows do more harm than good for people who are trying to learn about flipping. Some of the shows are enjoyable, some of the shows are a little over the top, but they all have one thing in common. Television house flipping shows are a very bad portrayal of what it is really like to flip houses. Not only are they not accurate at portraying what it is like to flip houses, but they teach some really bad lessons.
House flipping shows are meant to give a in-depth look at house flippers, how they find houses, how they repair them and how they sell them. Television likes to show conflict and drama, which usually happens when you are repairing houses and dealing with contractors and surprises. While we usually get a great look at the rehabbing process, the flipping shows tend to leave out the most important part of flipping which is finding awesome deals and financing them.
It’s definitely not easy to find great contractors who work for a reasonable amount of money and will complete jobs in a reasonable amount of time, but it is only a small part of flipping. The flipping shows do not show the hard work that goes into finding deals, financing them and selling the houses.
While the buying costs are usually minimal on most properties, you will have to pay part of the closing fee, sometimes title insurance, recording fees and more. Many times investors pay for more items than usual in a purchase to entice the seller to sell to them at a great price. There was most likely at least a few thousand dollars in buying costs. The hardest part is finding the deal, which they leave out. They barely mention how they find the deals on the flipping shows and after analyzing them, the houses are actually not that great of deals and are actually properties that many real estate investors would not actually buy. These shows also do not show the process of finding contractors, and they do not show the financing aspect, or how to find a good realtor, which is a very essential part of the process.
How much would these properties actually cost?
Almost every house flipping show leaves out costs associated with buying, holding and selling the home. Flip or Flop does a better job than most, but still instills some very risky tendencies. The biggest problem with the house flipping shows is they assume all the flippers pay cash for their deals and have an unlimited amount of money. This is not realistic.
If you are planning to flip a house…
Remember that it’s critical to hire a licensed contractor. A little unlicensed construction might not seem like a big deal, but permit problems can lead to lawsuits if potential buyers (or their potential lenders) discover defects late in the process of a sale. If you’re working on your home’s structure, plumbing, gas or electrical systems, you’re probably going to need the city’s stamp of approval.
Don’t feel the need to sell it immediately after. If the real estate market in your region takes a sudden turn and you find the need to change your strategy; say, by offering your project as a rental property until prices recover; you’ll need to be prepared to hold tight until its eventual sale. Flips might feel like sprints, but they can be marathons. This is another negative aspect of reality house flipping television shows. They buy a house, flip it, and sell it all within thirty minutes.
It’s not a race
What’s even worse than making mortgage payment after mortgage payment on a home that isn’t supposed to be yours for long? Falling short of the profit you should have made because you prioritized speed over a job well done.
A stitch in time saves nine
It’s undeniably satisfying to step away from a frustrating bit of renovation and turn to another task—a flipper’s work is rarely done, after all—but it’s also a surefire way to end up in the middle of a half-finished mess. The only way to make sure you’ve dotted your I’s and crossed your T’s is to follow projects through to completion, no matter how mind-numbingly tedious they might be.