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Realtor.Rock is a bi-monthly column where local Realtors share their expertise on real estate matters.
This weeks interview is with Rick Anders, a Realtor with RE/MAX Property Source. Rick can be reached at (815) 381-5654 or (815) 543-4144 cell. His e-mail is firstname.lastname@example.org.
What is flipping and how does it work?
Flipping a home is when a buyer purchases a property that has gone through foreclosure or some kind of distress, makes the necessary repairs, and puts the property back on the market for sale. Many of the homes that will be flipped are put on the market with real estate companies that represent the lenders at the time of foreclosure. A large portion of the homes are distressed properties because the owners could not afford to make the payments and also maintain the property.
One of the things that contributed to flipping was the surge of home buying in recent years stimulated by record-low interest rates and relaxed buying guidelines, which meant almost anyone could afford to buy a new home.
In many cases, a home that is being flipped can be traced back to a buyer that could barely afford the mortgage payments to begin with.
With the invent of new television shows about home repairs, home sales, and now the latest craze, flipping houses has become more popular. The television shows make it look exciting, quick and easy to flip real estate, usually with a handsome profit. The snags and delays are not just for effect; there are always challenges when rehabbing properties.
What are some of the factors that should be considered when thinking about buying a piece of property to flip?
Unless you have cash on hand to do the purchase and repairs, you should first speak to a qualified lender. Make sure the lender is willing to work with you on the purchase. Loan conditions for buying investment property are much different than buying a property that you are going to live in. The lenders risk is higher with investment property versus buying your personal home; therefore, the lender will require different conditions. Normally, higher credit scores and more money down are needed to buy investment property. Since lending requirements have gotten tighter in recent months, there tends to be fewer properties advertised as No Money Down.
Most realtors have their own area of expertise that they prefer to work in. Contact a realtor that has experience and knowledge of locating foreclosure and distressed property. Ask your agent to get you comparable properties in the immediate area so you will know what to expect at the time of resale. Keep in mind that the property will have to appraise correctly in order for you to sell it to the next buyer. Your realtor can be a good source to help locate real estate attorneys, plumbers, roofers, carpenters, electricians, painters, landscapers and other practitioners necessary to complete the project. Unless you are savvy at making home repairs, you may need quotes from various trades people to get a good job done and still make a profit.
What can you do to protect yourself from buying a home that may require more repairs than you can afford to make and show a profit?
If you are new at buying investment property, I highly recommend getting a professional home inspection. This can be money well spent, and can help you make a final decision whether or not to buy a property. Real estate agents frequently use home inspectors to purchase property. A home inspector can be totally objective about a property. Property inspections for an average size home normally take two to four hours and most inspectors will allow you to come along during the inspection. This gives you an opportunity to see how the property systems function, insight as to what causes damage to homes, and how to avoid future problems. At the end of the inspection, you receive a detailed report telling you areas that need to be addressed.
Always check with the city or county to get the proper building permits and check zoning ordinances. If the property needs improvements in the electrical system, roofing, plumbing or other areas, you will need permits to make these changes.
Dont forget that you will need insurance on the property for the time you own it. Some insurance companies do not handle properties that are getting flipped.
Is there anything else to consider?
Decide where your money is most needed as well as where you will get the most return on your money. As with any property, landscaping, kitchens and bathrooms usually give you a higher rate of return on your money. Keep in mind when you are thinking about improvements, that you will not be living in the property yourself. Always choose décor, fixtures and appliances that are appropriate for the property, yet appealing to a wide market.
If you enjoy making improvements on your own home, then maybe this can be a good choice. If not, you may be buying yourself a part-time job.
James Frazier is the owner of A Defined Design-Professional Home Staging Service. He can be reached at 815-997-3212 or through his Web site at www.adefineddesign.com.
from the June 13-19, 2007, issue