What Is a Flipper House?
A flipper house is a home that a real estate investor, known as a "flipper," buys in its original condition at as low a price as possible. The flipper does not intend to live in it; they want to renovate and then quickly sell, or "flip," it 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 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.
Investors who are averse to the quick-sell approach can make money on a flipper house by renting it out after the renovations are complete.
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:
- Investor property selection: Investors consider multiple factors before selecting a property, including the state of the local real estate market; what local buyers value; the cost, current condition, and architectural uniqueness, if any, of the property; and renovation and selling costs. The best candidates for flipper houses are underpriced homes located in markets with rising prices and strong demand. They also should need only a few features updated, 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 may help avoid overextending an investor financially, but paying with cash means having no interest costs, thus 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 that renovations conform to the building code; layout, electrical, and plumbing improvements often require 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 little more than cosmetic improvements, whereas structural changes like room upgrades or additions are riskier and call for more 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 architecture. 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.
- Property resale: Buyers aim to minimize the sale price to get a bargain on a flipped house. The flipper's goal is to maximize their profit 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 asking for a home warranty that covers the cost of repairs for a certain period of time in the event that a fixture or system fails.
Whether you're a flipper or a regular buyer, 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. 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.
- 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.
- A flipper house is a house that a real estate 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 the investor and buyer 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 be alert to scams to protect themselves when buying a flipper house.