The following is a reprint of my column that appeared in Frontiers In L.A. magazine on July 1st, 2010.
With the proliferation of shows about house-flipping, enthusiasm continues to increase for what used to be a pastime for those with only the strongest of stomachs. Novices are getting into the game more and more, looking for their piece of the action.
For those not familiar with the term, “house flipping” is buying a home, making improvements and selling it for a profit, usually as quickly as possible. Typically the home is purchased either from a distressed seller or in such a condition that it will require some degree of work (either cosmetic or more substantial) in order to bring it up to such a standard that it can be re-sold at a profit. “Flippers” look for a house that needs updating and renovation, in a great location, that they can bring up-to-date and sell at a price comparable to the highest sales in the neighborhood.
There are many aspects to flipping property—far too many to cover in one column. However, here are a few important things to look for when considering a flip property. Once you find the house that seems like it might be ripe for a flip, there are a few things that you want to be sure to investigate thoroughly, because they can make the difference between a modest investment on your part and a huge one. And that in turn can be the difference between big returns on your investment and losing your shirt.
- Plumbing. Many older homes were built using galvanized pipes. As they get older, galvanized pipes begin to pit and corrode, and can lead to decreased pressure and water contaminated by the buildup of hard mineral deposits. If the home has already been updated with copper plumbing, that’s one less major cost you’ll be taking on. When inspecting a house to determine its profitability, be sure to investigate whether any or all of the plumbing has been updated. Most new homes now use CPVC (chlorinated polyvinyl chloride) piping. It’s less expensive, more durable, immune to corrosion and resists scale buildup.
- Roof. Most homes that haven’t been well maintained probably haven’t had a new roof in many years, or even decades. Check the roof for any signs of wear and look inside the house for signs of moisture or leaks that could indicate a failing roof. Roof replacement can range in price depending on what kind of materials you use. Finding a flip house with a roof that is still in good condition and isn’t close to the end of its life will save you money.
- HVAC. When sizing the home up, be sure and check for yourself how well the heating and air conditioning systems work. They may need nothing more than a good cleaning or filter replacement. If there is no AC, you’ll have to have it installed to get top dollar. Even if there is no central air, there may already be ducting throughout the house from the heating system, which will lessen the cost of putting in central air.
- Electrical. If the electrical panel has been upgraded from the old fuse box to modern circuit breakers, you’re already a step ahead of the game. You may need to add more capacity to it, but that won’t cost you nearly as much as replacing it. Are there ample outlets in each room, or will you have to add them? Rewiring an entire house costs a lot of money and can eat into your profits. If you can find a flip candidate that already has an adequately updated electrical system, that’s one less thing for you to spend money on.
- Foundation. To bolt or not to bolt? That is the question. Bolting a house to the foundation (also referred to as seismic retrofitting) is basically what keeps it from falling off of its foundation during an earthquake. When buying a house, shear walls and bolting are very expensive, and since buyers don’t walk in and get turned on by bolting, finding a house that is already bolted will save you thousands of dollars that you can spend on slab counter tops and stainless appliances, which are a must if you are trying to get top dollar.
- Keep your eyes open for a house that has a patio or space that could be easily converted (with the necessary permits) into additional square footage ... always a big money maker!
As mentioned above, flipping houses is not necessarily for the weak of heart, and it’s best for a novice to start small (consider starting with a condo that needs some love). Work your way up to bigger and bigger projects, pay attention to the market in the area you’re considering flipping in, and always pad your budget—you will very likely exceed it! A realtor can help you find houses that are underpriced for the area and have upside potential. They can also be an excellent resource for other service providers you’ll need during the process, and can help you assemble a winning team—including your lender, inspectors and contractors.
Jefferson Hendrick is an L.A.-based realtor with Keller Williams. Contact him with questions, concerns and real estate inquiries at email@example.com or facebook.com/jeffersonhendrickrealtor.