With real estate investing as one of my favorite topics, I wanted to provide some thoughts that I've accumulated over time on the art of "flipping" homes.  I'll do this over a couple of posts.

When you hear the word, "real estate flipping", what comes to mind?  First, I think of the real estate investors or speculators of the market that was from a couple of years ago.  People would purchase as many properties as possible and then hope to sell them to people for a profit a short time later without really doing anything to the home.  Great idea in a market with rising prices, but for those who were late to the game when the market turned were left with unsold properties that were losing value and had negative cash flow to boot.  Many of these properties were then sold for a loss or worse yet, foreclosed upon by the bank.  This strategy had its heyday, but currently, the risks certainly outweigh the potential gains.

Second, I think of investors (or investment groups) that actively seek sellers who are in a dire financial situation that desparately needs to sell to avoid some adverse consequence.  This type of investing is more complicated as you need to think of three different things...1) how much can you purchase the home for, 2) what are the cost of repairs and 3) what can you sell it for and what costs are involved.  I have read somewhere that the cost of renovations are the most miscalculated cost so these investors will mitigate this risk by offering to the seller anywhere from 50-80% of market value depending on the condition of the home.  Thus, if they can find a buyer in this desparate situation, they could potentially do very well in "flipping" the home.  When I have worked with these folks, it is trying to find the proverbial "needle in a haystack" situation.  While I know that this strategy has worked for some people in certain cases, much of it becomes a wild goose chase to try and find these situations.

In my next post, I'll talk about the HGTV's version of flipping.

Mike