Interested In Flipping Houses--Now is the Time

We’re at a unique turning point in the history of Rhode Island real estate.  From the top of the market in 2006, we saw 5 years of steady and sometimes dramatic decline.  It’s no news that the crash in the housing market negatively effected values in every housing sector in all parts of the state.  Seldom before seen short sales and foreclosures became prevalent.  (Short sales are where proactive homeowners who owe more than their property is worth sell at a loss with the approval of the bank; a foreclosure happens when a homeowner misses too many mortgage payments and the bank reclaims and then sells the property.) Both of these types of transactions are referred to as “distressed” sales, which of course create opportunities for those in a position to buy. 

2012 marked the stabilizing year in local real estate, and 2013 is being reported as the comeback year--where increases should hover between 5% to 7%.  And these types of numbers are expected annually for at least the near future.  This moment in time is unique because although the numbers of distressed properties are rapidly decreasing, there are still many bargains, which are the best houses to flip.  With buyers of all ilks re-entering the marketplace; housing inventory in most parts of the state low; and mortgage rates still scraping the bottom (around 3.5%)--making a chunk of change by buying cheap, intelligently remodeling and selling for a profit, is, well, dare I say, easy.

Though in sad shape--cosmetic nightmares, copper missing, heating systems removed, mold from burst water pipes--it’s still easy to find single family houses for $40k-$100k.  Granted, these properties are not in the top neighborhoods.  I live and work in Providence, so the metroplex is the market I know the best.  And while you can’t find this type of deal in Wayland Square, Mount Hope sees these kinds of numbers.  Fringe neighborhoods present great opportunities for flippers--the edges of Elmhurst, Oak Hill, Edgewood, Rumford, Armory, Pawtuxet and Fruit Hill.  Or neighborhoods that attract first time home buyers and blue collar families like Darlington, Mt. Pleasant, Gaspee, Riverside, Auburn and the North End.

I have worked with flippers at every range, but the bread and butter have been and will continue to be low-level starter homes--properties that can be purchased for $80k, that can be remodeled for $30k and sold on the open market for $145k.  Not big money, but fairly safe, quick and easy hits.  30 days to buy, 90 days to renovate, 60 days to close--$25k net profit in 6 months.  Two a year and you have a nice supplemental income.  Full-time flippers have their own crews, so can be in and out of a property in 30 days.  And they constantly have properties on the conveyor belt, which allows them to flip upwards of 6 per year.

There are some important things to consider if you’re going to try your hand at flipping:

  • Attach yourself to a real estate agent with experience in flipping.  You want to know what to pay, how much to put in and what you can easily sell it for afterward.
  • To get the deals on distressed properties and to compete against experienced flippers, the best offer is cash, no inspections and a quick closing.
  • If you don’t have cash, look into 203k mortgages--specifically, rehab loans for investors.
  • These kinds of deals are not in unlimited supply.  As the market continues to improve, distress will diminish. If you have the resources, banking good deals now to flip later is a strong strategy.
  • Rather than buying and flipping immediately, some investors are choosing to buy, rent and hold for a few years until the market is even stronger than it is now.
  • Avoid houses with hard to remedy blemishes--small yards, limited bedrooms, bad layouts, limited parking, sloping floors, ugly exteriors.
  • Don’t overpay on the front end, don’t over-improve and stay on budget.
  • And remember, while you may not hit it out of the park on the first one, like anything, the more you do the easier (and more lucrative) it gets.