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How House Flipping Works


Flipping New Homes and Foreclosures
Antioch, Calif., has experienced a spike in home foreclosures: 271 homes were repossessed between January and August 2007. Home prices have dropped 15 percent.
Antioch, Calif., has experienced a spike in home foreclosures: 271 homes were repossessed between January and August 2007. Home prices have dropped 15 percent.
Justin Sullivan/Getty Images

Once you've decided on what kind of house to flip -- new construction, a fixer-upper or a foreclosure -- you need to figure out the neighborhood. Don't skimp on the research here. Make sure you really investigate the area -- drive around during the day and at night, check recent sale prices and find out if any other flippers are sitting on empty houses.

­If you've decided to flip a new home, your options are somewhat limited to what's being built in the area -- typically in housing developments. Some communities also have restrictions on buyers, requiring them to live in the house so the community doesn't end up a ghost town.

If you've opted to buy a home in foreclosure, you'll be buying from a lender -- foreclosed homes are also known as REOs, or real estate owned by the lender. Purchasing an REO is a lengthy process, typically six to eight months. This is because for a bank to foreclose on a home, it must file court papers against the homeowner, which takes awhile. If it's an auction, you're ruled by that timetable. And because the home is sold "as is," banks might not be as willing to hand out a loan.

But if you're determined to buy a house in foreclosure, there are plenty of Web sites that list REO houses, often for a fee. And many lenders, like Fannie Mae, list the homes they have in foreclosure. A warning here: Many of these sites will let you search for homes anywhere in the country, but experts agree that one of the biggest mistakes flippers make is buying a house sight-unseen. The photo of the house may be pretty, but there's no way to guarantee anything else. It doesn't give you any clues about the neighborhood, and there's no way of knowing how old the picture is.

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