House Flipping is Back in Style

Back in the boom of the early 2000s house flipping was all the rage. People had to put down little money to purchase homes at low prices, fix them up and sell them for profit. Many investors were born during those times. When the market started to dive investors all but disappeared from the radar screen, but now they are back, and in force. House flipping has become the rage and people are cashing in.

The foreclosure crises brought and still brings a lot of bad news. But the good news is that if you play your cards right you can profit in a big way. If you happen to frequent foreclosure auctions you can get a great deal, as the lender would rather YOU buy the property than it go on their books. But be prepared and be careful–you need a lot of cash, local market area knowledge, and a lot of patience.

Lenders have become wiser and know that to create a bidding frenzy and get the best price they have to set the minimum auction bid at low levels. Investors come to the auctions ready to buy. Most of the time they have not had access to the property and therefore have not been entitled to a home inspection. So they have to be ready financially for any potential issues that may arise. ForeclosureRadar.com estimates that 21% of homes sold in November went to investors rather than to the foreclosing lender. This number is up 6% from a year earlier.

There are advantages and disadvantages for the bank in using auctions. The obvious advantage is it does not have to purchase the home and place it on the market, do any maintenance to get it in shape to appeal to buyers, deal with paying commissions and taxes, and they are paid immediately. But the disadvantage is that the home may go for a lot less than the bank may get if placed on the market.

The advantage of the auction for investors (other than getting a great price on a property) is that there is no need to negotiate the sale with a bank that is understaffed and has far too many listings on the market, nor with a seller who is struggling to avoid foreclosure…there is no waiting time.

Many of the new flippers today are able to turn around and sell the acquired properties to foreign purchasers, especially from Canada and the Orient, as they take advantage of the low dollar conversion rates, so you may want to consider advertising abroad.

Remember that there are risks involved in purchasing property at an auction: most of the time you do not know what you are getting. It is not rare to see damage caused by disgruntled homeowners forced out by foreclosure–sometimes it can be costly. That is why you need to do your homework, check tax records for any liens on the property, try to get as much information as you can, and make sure you have cash on hand in case you need to address any problems.