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Affluent Investor | April 29, 2017

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Before Becoming a House Flipper, Think Carefully

home PUBLIC DOMAIN

House flipping is an investment strategy where properties are purchased with the goal of reselling for a profit. This profit occurs either through a hot housing market or from renovations and improvements made prior to reselling.

In an article on December 28th at MarketWatch.com, Kirsten Grind reported that this is a great time to be in the house-flipping business. She states that the number of investors who flipped a house in the first nine months of 2016 reached the highest level since 2007.

One third of those were financed by debt.

According to housing-research firm ATTOM Data Solutions, the parent company of real-estate website RealtyTrac, “the market for house-flipping loans is expected to reach about $48 billion in total sales volume this year, the highest since 2006.”

Private lenders are investing in the boom along with big banks. Boomers are selling and millennials are buying, motivated in part by the fear of rising mortgage interest rates.

Although profits have and continue to be made, I urge you to consider this market with caution. Inexperienced house-flippers entering the market is a concern and the foreclosure rate for investment property loans originated in 2016 is more than double owner-occupied homes.

Purchase price is a key to profit. Margin must be allowed for improvements and the cost of holding the property until it sells. As with the purchase of any house, you must be prepared to cover the costs of unforeseen repairs. And, you must know the needs and desires of buyers in your area.

Finally, remember the wisdom of Proverbs 21:5,

The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty

Take time to educate yourself in this market. Seek wise counsel, pray, and avoid emotional attempts to get rich quick!

 

Originally published on Handwriting on the Wall.

Chuck Bentley is CEO of Crown, a non-profit business and personal finance policy and educational organization, and author of “The S.A.L.T. Plan. How to Prepare for an Economic Crisis of Biblical Proportions” and “Root of Riches, What if everything you think about money is wrong?”

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