HOUSE FLIPPING IN AMERICA: OLD BUSINESS AND NEW RISKS

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FLIP OR FLOP:REAL ESTATE MARKET NOWADAYS AND ALL ITS TRAPS

House-Flippling

 

The real estate market in the U.S. has reported, that flipping is back and that reaches the hot score, according to the Trulia, in 2016. What does it mean? It means that trend of buying property, repairing it and then selling quickly to a new homebuyer is revitalized. Flip itself is a selling of a home at least twice within a year, for a certain amount of money. If we look at 2016, more than 6% of home sales were flips. When we think of financial breakdown in 2008, we can understand why the house flipping has been forgotten for years. Who would dare to buy property, invest in repair and then to search for potential consumer of the final product, in the age of financial risks? No one. That was the main reason of failure of real estate market in America in the years of crisis. Regardless, it is stated that in 2012, the house flipping activity was great since the people with extra money and remodeling talent could have bought cheap houses from bank or insolvent people, renovate a bit and sell it expensive. But, the real chain of sellers and buyers have been broken due to the instability of market.

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Now, it seems that the field of investment grows up and learn to be competitive again. Trulia’s Chief Economist Ralph McLaughlin said: “We think it’s a little bit different this time because we think more flips are actually value-added improvements that investors are making to the house, rather than speculative flips which is basically someone buying and sitting on a home waiting for the prices to rise. But like the mid 2000’s, home prices are rising. Price increases in 2016 were the quickest in about 3 to 4 years, adding that gives flippers a potential layer of protection. If the flip doesn’t go according to plan, they at least made a little bit up in price gains in equity in the house.”

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The Trulia and RealtyTrac have been studies the opportunity for earning money from house flipping in America and they came out with the idea about gross profit that has been $63,000 in 2016 with an estimated 49, 2% gross return on investment. Nevertheless, the great amount of money is not guaranteed and it depends on the location, the economic conditions of the chosen market and on the job opportunities in the area of flipped properties.

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If you are interested in starting the house flipping business, it is very important to analyze the demands of the market and all potential traps. Once you are in, it is not so easy to pull back invested money or to save the investment without paying for side risks. The real estate professionals have studied the 150 places around the U.S. capable to be profitable for home flipping ambitions. At the end of the day, they offered the list of 10 the most attractive locations in America, to develop your house flipping vision. The list is based on the investment possibility, the calculated costs if repair and renovation, the quality of life and job opportunity.

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Laredo in Texas is definitely one of the top ten. It is situated on the banks of the Rio Grande, very family friendly with low costs of remodeling. Then we go in Idaho, in Boise that is known for high quality of life and low investment costs. This city has been labeled among 100 cities that are the best for life and children development. It is interesting that New Orleans, LA is also on the list in spite of not so high quality of life but the economic researchers have made an assessment that this city offers good opportunity for house flipping turnover. Tampa, Florida is on the seventh place for home flipping business with the second-highest proportions of house flips in America. The quality of life is not impressive but the financial cover for costs of renovation makes Florida and Tampa very attractive for house flippers. Texas comes out with one more city for house flipping and that is Lubbock, the perfect combination of low remodeling costs and good life quality. Lincoln in Nebraska takes the fifth place. As a college and business town, it is still named as an ideal for life and house flipping activism. I found surprising the fact that Oklahoma City in on the forth place as a super location for real estate flipping opportunities. In spite of very low quality of life, Oklahoma City is favorable market for properties with expected boom. The third one among tope 10 and the third one from Texas is El Paso. The city has high quality of life and low costs of remodeling. El Paso has the weakest and not enough studied real estate market but there are certain reasons to believe that this city offers a chance for house flipping development. Then we arrive in northeastern Indiana, experiencing Fort Wayne, which gets the second place for its reduced costs of renovation and good life standard. What is very interesting to keep in mind is low bathroom investment costs in this city. According to WalletHub´s reports, the first place is reserved for Sioux Falls, S.D. That is somehow the best proportion of investment costs and potential to sell remodeled house for a good price to the people that seek great life opportunities in the mentioned city.

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This business is not free from risk. First, one has to make start up project with the estimated costs and expected potential consumers. Second, that project must include the study of local real estate market and the circulation of money among people. You might find the cheap house somewhere in the middle of nowhere, with zero investment or with reduced costs of renovation, but the main question is who will buy it when everyone has left the town or the town has lost a sense for entertainment. For example, Las Vegas has the highest rate of house flipping because the all is linked to the expensive properties and one group of rich people that sell it to the another group of rich people. When it comes to the ordinary people and their luck with home flipping, they are more fragile to be financially disordered if something or anything goes unplanned or wrong. It is not so easy to find the affordable property, with not so much future investment. This must be in balance with the location setting and the economic background. The ideal flipping house is single-family house with minimum level of reparation, located in the area with stable economic growth and fluctuation of people and goods. Unfortunately, there are not so many houses that will meet these conditions. That further means that 150 potential investors will go at auctions and try to get some of the 40 offered houses, with more or less potential to bring doubled profit. Someone has own capital but someone can also seek the financial support for own risk and start house flipping on credit:” You don’t necessarily need to have the capital to buy property with cash. Susan Naftulin is the owner and president of Rehab Financial Group, a lender for real estate investors in Rosemont, Pennsylvania, and she says her firm takes the pace of the market into account to help borrowers remain competitive with cash-heavy buyers.”

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This doesn’t mean you have to invest big and hope your profit will launch you into the rich establishment of the U.S. For the beginners it is important to calculate costs before they even think of opening the budget. It is better to invest small and smart than to lose money investing in dead water. Then, it is sense to try with condos, commercial facilities and rental real estate. They are not so exploited as single-family house and they could bring money in the long period. The best time for searching for an ideal house is in the time of economic downturn. This usually has two sides. You are able to find house and to buy it for a small amount of money without need to invest a lot but you have to find the eligible market and consumers. Even if you find them, you have to be sure that the picked area will be a golden mine for real estate appetite. Regarding the calculation of invested money in remodeling in proportion with expected profit, you have to count on the worst conditions of sale as well as the challenging renovation costs. All what get you in positive score is your own success but the road is long and with lot of obstacles and it is also significant for house flippers to know that they wont be free from taxes: ” Any profit that you make on an investment property may be subject to capital gains taxes, and depending on whether you owned the property for less than or more than one year, your capital gains rate will vary. However, you will also have the ability to do a 1031-Exchange and postpone the taxes owed to a future point in time. A §l031 Exchange is a transaction in which a taxpayer is allowed to exchange one investment property for another by deferring the tax consequence of a sale.”

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Getting into the home flipping industry is not simple step into the daily business but a whole project that includes analyzing pro and cons as well as the personal capability to deal with unexpected consequences. There is no an instant recipe for a successful house flipping activity. It is almost like a gambling. You can get all or you can lose all but it is still more exciting as simply having job and being occupied from 9 a.m. to 5 p.m.

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4 thoughts on “HOUSE FLIPPING IN AMERICA: OLD BUSINESS AND NEW RISKS

  1. Hello ,

    I saw your tweet about animals and thought I will check your website. I like it!

    I love pets. I have two beautiful thai cats called Tammy(female) and Yommo(male). Yommo is 1 year older than Tommy. He acts like a bigger brother for her. 🙂
    I have even created an Instagram account for them ( https://www.instagram.com/tayo_home/ ) and probably soon they will have more followers than me (kinda funny).

    I have subscribed to your newsletter. 🙂

    Keep up the good work on your blog.

    Regards
    Wiki

    Liked by 1 person

  2. Sarah’s intriguing and informative article articulates the reality that Capitalism is a form of mental illness; at least, the extreme perversions of it. Capitalism is a self-destructive ideology (i.e. it destroys what it requires to sustain itself; such as biodiversity and healthy workers/consumers).

    Prior to the 18th century, elite citizens of English-speaking countries used the word ‘property’ in reference to land ownership. In England, ‘property’ did not have a legal definition until the 17th century. Private property (i.e. as commercial property) was invented via the powerful European trading companies of the 17th century (e.g. British East India Company).

    In the 18th century, during The Industrial Revolution, the moral philosopher and economist Adam Smith (1723–1790) drew a distinction between the ‘right to property’ as an acquired right and natural rights. He confined natural rights to ‘liberty and life’. Also, he argued that civil government cannot exist without property, because its main function is to safeguard property ownership, ostensibly.

    In the 19th century, the economist and philosopher Karl Marx (1818–1883) provided an influential analysis of the development and history of property formations and their relationship to the technical productive forces of a given period. His conception of private property has proven influential for many subsequent economic theories and Anarchist, Communist and Socialist political movements, and led to the widespread association of private property with Capitalism.

    The Socialist critique of private ownership is heavily influenced by the Marxian analysis of Capitalist property forms as part of its broader critique of alienation and exploitation in Capitalism. As income does not correspond to a return on any productive activity and is generated by The Working Class, it represents exploitation. The property-owning (Capitalist) class lives off passive property income produced by the working population by virtue of their claim to ownership in the form of stock or private equity. This exploitative arrangement is perpetuated due to the structure of the dysfunctional Capitalist societies.

    If a working population cannot afford adequate housing, the society suffers…

    Liked by 1 person

  3. Thank you so much, Sarah, for this educational topic !

    As you have so well explained, herein, house flipping is enticing yet risky ! There are so many factors to be taken into account before delving into such business !

    One of the key points is what you mentioned in that house flipping is good when there is an economic downturn, as the house prices would be driven down by the market. However, it would then be difficult to find a buyer in such economy !

    On the other hand, during a good economy, the opposite is true. In other words, the purchase price would be substantially higher, but it would be easier to sell !

    What a paradox ! As everything in life, the best risk to take is a “calculated “ risk, as it lowers the probabilities of losses !

    What an excellent article, Sarah ! It is so well written and so well organized !

    Liked by 1 person

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About Sarahowlgirl1982

I am a master of Political Sciences, with special focus on Security Studies, Islamic Counter Terrorism and Weapons of Mass Destruction. I enjoy discovering and commenting things which are " in the air" but still not spoken.I also do like science writing and planing to move myself into the pure science journalism !