In a sign of economic rebound from the troubled foreclosure economy, flipping houses is back in the Chicago real estate market. Many real estate investors are making money off of the practice, one that nearly disappeared during the real estate bust of the previous few years.
What is Real Estate Flipping?
The practice of flipping real estate is where a buyer, usually an investor, purchases property at a reduced price, and then immediately re-sells (“flips”) the property by selling it to another party for a profit. Flippers usually find their properties through foreclosure sales, county tax or lien sales, and other avenues where the owner is forced to or wants to sell the property at less than fair market value. Areas that are prime for flipping are those with lower or reasonable sale prices, and short listing-to-sale time spans.
The average gross dollar gain for Chicago flippers in 2013 was $86,700 per flip. The highest in the nation was in San Francisco, where flippers made an average of $194,000. Long island NY and San Jose CA were second and third.
A Word of Caution
Before you start seeing dollar signs, remember that in addition to the purchase price, the flipper may have to put additional funds into the property to “rehabilitate it”—which can include anything from cosmetic improvements, to making structural repairs to bring property up to city code before selling. Those costs can often quickly eat up any profits in a flipping deal, especially if there are problems with property that can’t be seen by the naked or untrained eye. Many flippers are contractors or use them to assist them in spotting potential structural problems in properties.
Flippers often are very well-capitalized investors or companies with large real estate portfolios. And if you’re looking for financing for a flip, you’ll likely have a harder time than the speculators in the past, now that banks and lenders are stricter about who they lend to.
Aside from the costs, flippers also must be aware of liens, and title issues that may cloud ownership. Purchasing property that has a significant mortgage or unrecorded lien can lead to financial disaster. Title searches and knowledge of real estate law can be helpful.
Many flippers lost a significant amount when they invested in 2006-2008, only to see the market and property values tank. For years after that, the failing real estate market made flipping financially risky, but the comeback indicates another upward turn in the real estate market. And remember that even if you’re not a flipper, real estate transactions stem financial growth in other sectors, from realtors to brokers to contractors and construction workers.
Questions about flipping or real estate? Thinking about investing in property? Contact The Slater Firm LTD to discuss safely purchasing and closing on property, whether its for investment or for your own family.