Are the Days of Home Flipping Over? Arizona

If you’ve been thinking about buying a home, fixing it up and selling it for a quick profit, better proceed with caution. It’s often said that once a trend hits the mainstream media, it’s a sure sign it’s on its way out. That may be a less-than-scientific way to gauge the direction of the real estate market. But the proliferation of TV shows that make flipping houses look like an easy way to make a quick buck has some financial advisors concerned.

“Flipping a house” is considered by real estate industry analysts to be owning a home for less than six months time. And in the heady days of booming real estate, “flipping” also came to mean turning a quick profit.

So now that the housing market has softened, is home flipping a thing of the past? Not necessarily. Speculators are just going to have to be a lot more careful. There will always be certain properties for sale that are undervalued. If you can find them, give them a quick makeover and put them back on the market, it’s still possible to net some cash.

But the risks of flipping are much greater during a slow market. First of all, if you undertake anything more than a minor renovation, your expenses may eat up a good chunk of your potential profit. While giving a home a fresh coat of paint may pay off nicely, installing granite countertops may not. Plus, if you can’t resell the home as quickly as you’d hoped, you have to be prepared to cover its carrying costs.

Still want to give home flipping a try? If so consider the following to minimize your risk and maximize your possible reward:

• Buy low. Make sure the property you buy truly is undervalued. Have an agent prepare a comparative market analysis (CMA) so you can see how its price stacks up against that of other homes in the area.
• Avoid buying in an “up-and-coming” neighborhood. For a quick flip, you want a neighborhood that presents itself well now.
• Get pre-approved for a mortgage so you can move quickly when you find a great deal.
• When estimating the cost of repairs and renovations, be sure to build in an extra 10 percent to cover unexpected expenses.
• Take care not to over-improve the house for the neighborhood. It’s usually harder to sell a home that’s the most expensive on the block.
• Have a back-up plan if your home ends up sitting on the market. Perhaps you can live in it yourself or rent it out to cover your expenses until you find a buyer.
• Keep your expectations realistic. Don’t expect to achieve the same sort of return in today’s market that you might have achieved a few years back.

Most importantly, don’t be fooled. A half-hour TV show that demonstrates what can be done by a team of dedicated professionals isn’t the same thing as flipping a home yourself.