I know plenty of investors made money by buying a foreclosure or short sale in my Florida community about three or four years ago. In fact, several close relatives of mine bought when the housing market hit bottom. One relative, in particular, is sitting on $55,000 of home equity after making an all-cash purchase with a short sale just two years ago. Her home purchase would have been the perfect 2-year “flip.” According to a recent article by The Street, fast-profit flippers are finding it more difficult to locate deals. When they do find a fix-and-flip, they can make an even greater profit probably because inventory is still low.
Duping home buyers
I can’t make money flipping because I would feel as though I’m taking advantage of a person. Investors I’ve seen purchase foreclosures in my community seem to do very little to fix up the properties. They may make cosmetic improvements, but I wonder about the condition of the roof, the air-conditioner and whether the home that has been sitting vacant for 5 or 6 years has dangerous mildew.
Hurting the neighbors
I’d also feel bad about competing with regular homeowners who want to sell their houses. One foreclosure in my neighborhood is selling for $165,000, which is only $10,000 less than a traditional sale of the same model down the street. It’s going to be difficult for the traditional seller to make the sale since the homes appear the same to someone who doesn’t know the difference.
Becoming too greedy
While some investors made money by making cosmetic improvements to homes and then renting them out, the rental inventory is too high in my area. I’ve noticed several rental properties sitting on the market for months. When the prices are lowered to less than $1,200 a month, they appear to go. I’m just now starting to see former rental properties being listed for sale since homes are being listed at higher prices.
Flipping new homes
I think one of the easiest ways to flip a home is to lock in a price on a new construction home and then sell it after the new home builder has had many price hikes. I know several people who made money at the start of the housing bubble, but it becomes riskier as prices get out of hand. The reason the values of homes in my neighborhood have gone up significantly in the past year is due to new home construction price increases. On the other hand, the home builders have the upper hand because they can offer deals on inventory homes. At a certain point, people just won’t be able to pay the high price of new construction. They will turn to older homes such as the ones in my neighborhood that sell for between $165,000 and $230,000.
Flipping homes is too risky and also requires a strong stomach. I know there are a lot of ethical people who fix up homes for a profit, but I see no evidence right now that flippers or investors are making much money for their troubles.
More from this contributor:
I Borrow From Myself Before Tapping Home Equity
I Didn’t Use my Home as an ATM
I Got Caught up in the Gold Buying Frenzy