A flipper house is a property that a real estate investor buys, fixes up, and then sells to another buyer at a higher price than they paid for it. The goal of this process is twofold: to yield a profit on the resale of the flipper home for the investor and a bargain on a home for the buyer.
Learn how a flipper house works and the advantages and drawbacks it presents to determine whether it's the right investment for you as a flipper or a homebuyer.
What Is a Flipper House?
A flipper house is a home that a real estate investor, known as a "flipper," purchases in its original condition at as low a price as possible—not to live in, but to renovate and then quickly "flip" or sell to a new buyer at a profit.
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 accounting for renovation expenses. 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 house-flipping scam. For example, a con artist may buy a property, make minor improvements, and sell it at an artificially inflated price to rake in huge profits. Such schemes, of course, are illegal.
Investors who are averse to the typical quick-sell approach can also make money on a flipper house by renovating a home and then holding it in order to rent it out.
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 in flipping homes, many people are attempting to flip homes or buy flipper houses.
The flip usually unfolds as follows:
- Investor property selection: Investors consider multiple factors before selecting a property, including the local real estate market, what local buyers value, the cost, current condition, and architectural uniqueness of the property, and renovation and selling costs. The best candidates for flipper houses are underpriced homes located in high-demand markets with rising prices, ideally those that require minimal updates to keep improvement costs low.
- Investor property purchase: Investors decide whether to finance the flip with cash or a short-term loan. A loan provides liquidity and avoids overextending an investor financially, but cash avoids interest costs, maximizing the profit of the investor. The investor tries to buy the home at the lowest possible price.
- Renovation: The investor obtains any permits needed to ensure renovations conform to the building code (layout, electrical, and plumbing improvements often demand a permit). They then have updates made to the home based on local market and buyer demands and their knowledge of construction. If the home is in good structural condition, it may need only cosmetic improvements like a paint job, whereas structural changes like room additions are riskier and call for additional expertise.
- Buyer property selection: Buyers must exercise caution when considering a flipper house in order to get a home that's structurally sound and meets their preferences for location and layout, features, and architectural uniqueness. They should verify any permits on the home through the city website and hire a buyer's broker or agent to access multiple listing service (MLS) data on the sale prices of comparable properties and negotiate the purchase for you.
- Property resale: Buyers aim to minimize costs to get a bargain on a flipped house, whereas the home flipper's goal is to maximize profits after accounting for expenses while still selling at a price that aligns with comparable homes in the area. Before the sale goes through, the buyer should hire a reliable home inspector to inspect the home and consider getting a home warranty that covers the cost of repairs for a certain period of time in the event a system fails or the plumbing leaks.
Whether you're a flipper or a regular homebuyer, follow the investing mantra "buy low and sell high" to maximize your return on a flipper house.
Pros and Cons of Flipper Houses
It enables buyers to score a bargain.
It allows buyers to get a turn-key home with new features.
It allows flippers to turn a profit, and fast.
It provides flippers with the pride of achievement.
Scam artists may leave buyers in the lurch.
Improvements can mask serious, costly problems.
A poor property pick can be a money pit for flippers.
Flipping has a high learning curve.
- 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. You don't have to undergo the effort or incur the cost of fixing up a home yourself.
- It allows flippers to turn a profit, and fast: If you research the market and play your cards right, you can make a sizeable chunk of money on a short-term investment, even after subtracting expenses. A flipper may hold a home for as little as three months before selling it, in some cases.
- It provides flippers with the pride of achievement: For home flippers, the renovation allows them to get creative fulfillment from constructing a dream home for someone else.
- 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 the buyer 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 you as the buyer may have to sink your own money into to repair over time. Getting a home inspection and warranty on a flipper house can guard against this scenario.
- A poor property pick can be a money pit for flippers: It's easy to overstretch yourself financially if you buy a fixer-upper that requires considerable and costly updates that you failed to budget for when you bought it. Once you factor in all the costs on such a home, you may actually lose money.
- Flipping has a high learning curve: The process is best undertaken by those with knowledge of real estate and construction. If you don't have the necessary experience, enlist agents, lawyers, or builders who do to avoid getting in over your head.
- A flipper house is a house that a real investor buys, fixes up, and sells at a profit to another buyer after a short period of time.
- Flipping can be a financial win-win for investors and homebuyers when it goes well, but it can also be a money pit.
- Investors should have real estate and construction knowledge before they flip a home, and buyers should enlist a buyer's broker and avoid scams to protect themselves when buying a flipper house.