Open House

By Jim Woodard

March 20, 2009 5 min read

OPEN HOUSE

Flipping homes is still possible for savvy investors

Jim Woodard

Creators News Service

House flipping is still alive. The number of flippers is much smaller than it was a couple of years ago, but some determined investors are still active at the practice -- and making money.

Buying bargain-priced residential properties and quickly reselling them at a profit was a huge segment of real estate market activity in the past. Some investors added cosmetic improvements to their purchased house, while others resold them as soon as possible with scant improvements.

Today, that segment of the market is much smaller and involves more sophistication and risk than in the recent past. But potential opportunities are available and growing in numbers.

There are upsides and downsides to flipping in the current marketplace. On the upside, there are a growing number of homes available at bargain-basement prices. Many are foreclosures or close to being foreclosed. There are now more foreclosed homes available than at any time in the past 50 years.

Also, mortgage interest rates are still at historically low levels. Sure, mortgage financing is more difficult to obtain, but it?s available to those who persist and are qualified.

As for the downside of flipping, the housing market is sluggish, often requiring long periods of time to find a buyer and consummate a sale. The days of quick turnaround sales are over. This translates to larger carrying costs to be paid for by the investor-flipper.

The difficulty in finding suitable financing must be considered by today?s flippers. And the amount of potential profit is smaller. Keep in mind, prospective buyers can avail themselves of those bargain-priced homes along with the flipper-investors. This holds prices down on all homes.

It takes a high level of strategic planning to be a successful flipper in today?s market. Investors must be diligent in analyzing home costs in the area, and they must carefully inspect the property to be sure it won?t require expensive repairs after the purchase. It?s also important to check out positive and negative factors in the neighborhood. Investors must plan for costs that will accrue over longer holding periods, e.g., interest payments, taxes, insurance and maintenance.

Bottom line: Flipping can still be profitable, but it involves more strategic planning and risks than in previous years.

Q: When will homes become more affordable?

A: Home affordability is on the rise. In fact, it?s at highest level in the past four years, according a report from the National Association of Home Builders (NABH) and Wells Fargo.

That good news results from price decreases in recent months and mortgage interest rates holding at historically low levels. These factors are driving increasing numbers of buyers to act before interest rates rise.

During the third quarter, about 56 percent of homes sold were affordable to families earning the national median income -- far more than the 40 percent of families who could afford homes at the peak of the housing boom, said the report.

?If there is a silver lining to this crisis, it would be that some housing markets have become more affordable with a larger inventory to choose from,? said a NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, W.Va. ?But this is undeniably a crisis and Congress needs to act on housing stimulus to get the marker moving again.?

In the two most affordable markets, both in the Midwest, 91 percent of homes sold in the third quarter were affordable to families earning the areas? median household income.

Q: Is hiring a mortgage-modifying expert a good idea?

A: An increasing number of firms are touting themselves as ?mortgage loan modifying experts? and offer to negotiate favorable modification terms for homeowners for a fee. They primarily advertise via e-mail spam messages, websites and on radio.

This is an unnecessary service and cost. Individual borrowers are the best people to discuss their loan with their lender and negotiate modified terms. The last thing troubled borrowers need is to pay yet another fee for something they don?t really need.

It?s similar to the rash of firms offering to take action to obtain lower property taxes for homeowners, for a fee. They apply for an appeal at local assessor offices -- the same thing individual homeowners can do without paying a fee.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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