If the work is done correctly, these homes are a win-win for both the home flipper and the new buyer. Assuming the flipper sells the house at a higher price than they paid for it, they make money even after taking renovation expenses into account. Likewise, flipper homes allow new buyers to get a bargain on a property where everything is new and fresh, often right down to the appliances. While flipping a home or buying a flipper house is legal, a flipper home may also be at the center of a scam. For example, a con artist might buy a property, overstate the improvements they made to the home, and sell it for much more than it’s worth. Such a scheme, which involves fraud, is illegal.
How a Flipper House Works
Remodeling a fixer-upper and selling it to turn over a profit is a widely accepted way to make money in real estate. The practice has become so common that there are several television shows dedicated to its pursuit. Due to the rise in popularity of the practice, many people are attempting to flip houses. The flip usually unfolds as follows:
Pros and Cons of Flipper Houses
Pros Explained
It enables buyers to score a bargain: A flipper house may give low-income or first-time buyers the opportunity to buy a home at a price they can afford, and sell it later at a profit. It allows buyers to get a turn-key home with new features: A flipped house is move-in ready and features improvements like modern carpeting or updated fixtures that make it look and feel new. The buyer doesn’t have to undergo the effort or incur the cost of fixing up the home. It allows flippers to turn a profit, and fast: If flippers research the market and play their cards right, they can make a nice chunk of money on a short-term investment, even after subtracting expenses. A flipper may hold a home for as little as three months, or even less, before selling it. It provides flippers with the pride of achievement: For some home flippers, the renovation allows them to get creative fulfillment from constructing a dream home for someone else.
Cons Explained
Scam artists may leave buyers in the lurch: Such a flipper may arrange a mortgage loan based on an artificially inflated home appraisal price and then sell it to a vulnerable buyer, leaving them with a loan worth more than the value of the home and putting them at increased risk of foreclosure.Improvements can mask serious, costly problems: Whether intentional or not on the part of the flipper, cosmetic improvements to a fixer-upper may hide structural deficiencies that the buyer will have to sink their own money into to repair over time. Getting a home inspection and a warranty on a flipper house can guard against this scenario.A poor property pick can be a money pit for flippers: It’s easy for flippers to overstretch themselves financially if they buy fixer-uppers that require considerable and costly updates that they failed to budget for. Once they factor in all the costs on such homes, they might lose money flipping.Flipping has a high learning curve: The process is best undertaken by those with knowledge of real estate and construction. If the flipper doesn’t have the necessary experience, they should enlist an agent, lawyer, and builder who do, to avoid getting in over their head.
