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How House Flipping Works


Flipping Fixer-Uppers
A fixer-upper for sale in St. Petersburg, Fla.
A fixer-upper for sale in St. Petersburg, Fla.
Photo courtesy Tiffany Connors

Budgets can balloon quickly on fixer-uppers. If you decide to invest in one, you need a high tolerance for risk -- and an exit strategy. The consensus from most home remodeling experts is this:

  1. You can make more money on a really cheap house that you turn into a nice house than a nice house that you turn into a premium house. All those expensive upgrades don't offer nearly as much return on your investment as fixing a cracked foundation does. For most people, this means hiring workers, or having a lot of help.
  2. The more people you get involved, the more coordination is required. You'll have to keep very close tabs on plumbers, electricians and handymen -- or hire a general contractor (which means a big increase in your budget).
  3. Think local. If you're remodeling a house in Massachusetts, use clapboard, not adobe bricks. The closer to home you stick for materials, the more experts you'll be able to find to help you install them.
  4. Don't overestimate your work. Sure, that paint job looks nice, but is it really worth a $20,000 markup on the property? Overpricing your property could just leave you with a house that people are wary of because it's been on the market too long.
  5. Don't get ahead of yourself. First-time flippers may see dollar signs when they think about buying multiple properties, but problems can quickly turn into bankruptcy if you're using one house's equity to pay for another's repairs. Plus, each home requires attention, and unless you're quitting your day job -- which the experts also don't recommend for newbies -- you will probably have plenty to do for one house without thinking about your next flip.
  6. However long you think the renovation will take and whatever you estimate it will cost, just understand that it will probably be much costlier and more time-consuming.
  7. Nearly every upgrade you skimp on will haunt you, remodelers warn. From cheap carpet to cheap electricians, quality of workmanship is something that flippers cannot fake in a softening market.

Depending on your goals and the extent of the renovations, fixer-uppers can take a few months (or less, if you're really lucky) or years to turn around. If you want to live in your investment as you're working on it, remember that there may be a lot of sawdust in your future. And while up-and-coming neighborhoods can explode overnight, there will also be fluctuations in crime rates, local business booms and school improvements, all of which can affect your property's value. Patience is key when waiting for a neighborhood to take off.

To learn more about house-flipping, take a look at the links on the next page.