By Kevin Chiu
Fueled by record low mortgage rates and lower home prices, flipping homes is enjoying a resurgence from California to Maine, despite the worst housing downturn in more than a half century.
Buying, renovating and then quickly reselling homes had its hey-day during the real estate boom, but many flippers are now reporting returns to higher incomes as a result of finding bargain priced properties. The foreclosure crisis has transported a down market to a flippers paradise as investors put their money on the line to find financial security.
“Holding costs can eat you alive, and with the inventory out there, buyers have a lot to choose from,” said Mark Sherby, author of How to Buy Real Estate at Foreclosure Auctions. “If you don’t get them (distressed homeowners) the first time they look at your property, most times you won’t get a second chance. Flipping houses is all about the turn. The faster you do it, the better.”
Sherby says a lack of organization and planning leads many investors flipping homes to fail. “No one person can know or do it all,” he said, suggesting anyone who is interested in becoming a house flipper join a local real estate investment group. As a member of the Diversified Investment Group (DIG), an organization of about 1,000 members based out of suburban Philadelphia, Sherby speaks from experience.
“You should have a Realtor on your team who can turn you on to attractive properties. People with trade skills, good general contractors, accountants, and even a real estate attorney are all necessary from time to time.”
Financial reform legislation passed by Congress will have an impact on flippers. Appraisal reform was re-written by the legislation, requiring new appraisal standards regulated by a panel that will soon monitor appraisers more closely.
“One of the biggest challenges flippers face to successful adaptation is the appraisal,” said Drew Sygit of The Lending Edge dot com. “HVCC has led to a race to the bottom for appraisal management companies’ fees to appraisers, which also means a race to the bottom for quality. This has seriously affected many flipper deals as appraisers see that a property was recently purchased as a foreclosure, so they use foreclosure sales as comparables and don’t give enough credit to renovations.”
Sygit and others who flip property are leery of the new proposals being made in relationship to appraisals, fearing a back lash in the marketplace that could be “over-kill.”
“The point most people miss is that although there are a lot of foreclosures on the market, most are junk,” said Sygit. “Buyers are spoiled these days. They want turnkey homes. Flippers that pay attention to what the market wants can therefore profit.”