Most likely the last thing on a real estate investor's mind these days is flipping a house. The housing market is soft and inventory homes are at a national high. MSNBC recently reported that if all homebuilding were to stop in the U.S., it would take more than 10 months for the nation's inventory homes to sell out. Times are tough for sure, but that doesn't mean there is not money to be made.
Flipping houses is a money-making strategy investors have been using for decades. It generally involves purchasing a home and reselling it for more then the purchase price. During the housing boom in past years, flipping was exceptionally easy. Investors could pick up a new or used home and flip it in a matter of weeks for a substantial profit. At that time, the market was sky rocketing. Houses were easy to sell and profits were even easier to make. Now that reality has set back in and the market is trying to straighten itself out, this type of flipping doesn't hold as many as promises as it did in the past.
Investors, however, can still make a profit flipping houses. Now more then ever there is an opportunity to pick up homes for a bargain and make a return on them. Real estate that has a tax lien or is in foreclosure can be picked up way below cost. Homes can also be purchases at estate auctions and resold for a profit.
Along with purchasing a bargain home to flip, investors can also go the fix it up route. This technique requires the investor to purchase a home in need of repairs. The investor then hires someone to make the repairs or makes the repairs on his or her own. By fixing up the home, equity is added thus increasing the value of the property. In turn, the home can be sold for a profit. The main downfall to this method is it takes more time then if you were to purchase a home at discount and simply resell it at market price.
Now there is a nasty little rumor out there that "flipping" houses is illegal. Fact is that simply isn't true. Although there is such thing as illegally flipping houses which in translation boils down to loan fraud, investors are well within their rights to purchase a home and resell it for a profit. Loan or mortgage fraud occurs when an investor purchases a home usually dilapidated and makes some superficial repairs. The home is then sold to naive buyers at an inflated price. These types of schemes rely on the collaboration of an investor, appraiser and mortgage broker.
In 2006, the Department of Housing and Urban Development addressed loan fraud by creating new regulations to detour flipping within the Federal Housing Authority. Now, the seller must own the property for more then 90 days in order for buyers with FHA backed loans to qualify for the purchase.
In short, house flipping isn't the money maker it once was. The good news is, when done right, you can still make money doing it.
