Fix Up Flipping

For the investors out there, an article from the Richmond Times Dispatch about fixing up abandoned houses in down-and-out neighborhoods poised for a comeback.

There has been a lot of news about "flipping" and flippers getting into trouble now that the market is stablizing. Briefly, a lot of people saw home prices appreciating like crazy so they bought a property at current market prices, sat on it for a while waiting for it to appreciate, and then sold it for a profit. These are flippers*. This worked out well for people who entered the market early on in the boom. But people still trying to profit by this practice in November and December were in for a rude awakening and many have had to sell their property at a loss. Hence, flippers in trouble.

I'm not a big fan of the this type of flipping because at the end of the day, you haven't really applied any skill or knowledge to the project. You're really just throwing money around, and since I have no money, this may be the reason for my distaste for the practice. I can't outright denounce the "strategy", however, because it's not exactly money for nothing. The profit is a result of the investor's willingness to assume the risk that there will be a downturn in the market and he will be left holding the bag. Whether, in fact, the investor is knowingly assuming the risk is questionable. I suspect many of these kinds of flippers are sheep following a recent market trend and anecdotal evidence of profit through flipping ('my brother's friend made $50K in 2 months, why can't I?'). I smile sadistically everytime I see a listing on ZipRealty for a never-lived-in property that was bought within the last few months and has been on the market ever since with price markdown after markdown.

Back to the original point of this post, while the "fix up flipper" is a type of flipping, it is not necessarily subject to the same problems as the buy, wait, sell flipper. This is because you can usually get the property at a bargain basement price because of its condition, as opposed to buying at market price and hoping for appreciation. And if you are good enough to be able to predict which neighborhoods are poised for a rebound, you are even better off with a fix up flipper because such a neighborhood can sometimes buck the trend even when the overall market is doing poorly.

What's involved in fix up flipping? The hardest part is finding a target property in a promising neighborhood. Not easy. If anyone has any tips, send me an email! If the house is abandoned, you may have to track down the owner and make him an offer. Once you acquire the property, you must determine what work the property needs. Check it out yourself and hire the appropriate inspectors as well. Most of these types of properties are going to need significant work, not just new carpet and a paint job. You'll have to hire contractors for each problem you find with the house: plumbers, electricians, roofers, etc. Alternatively, if you are inexperienced or don't want the hassle, you can hire a general contractor, discuss your plans for the house with him, and let him find the sub contractors to do the work. If you enjoy this type of work, as I do, fix up flipping can be profitable and fun!

I should mention that the folks in the linked article are not actually flippers. They bought the place to fix up and live in which is noble and a great way to contribute to your new neighborhood, even before you've moved in.

* The term flipper can refer both to a property that is flipped ('I found a great flipper downtown') and to the person doing the flipping ('He's not going to live in it, he's just a flipper').