Fostermamas,  in 97405

Should we buy a house to flip in this market?

Asked by Fostermamas, 97405 Thu Jan 8, 2009

We are getting ready to put our primary residence and our vacation home on the market as we are expecting to move out of the area in the next year. As I peruse the houses currently for sale I'm wondering if we should purchase one last investment property to flip instead of renting something while our house is on the market. Would you invest right now?

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Sylvia Barry, MAS,CIPS,SRES’s answer
Hi Fostermamas:

if you have the resources, the capitol, the business plan and a team of experts on your side, then you can do it wisely.

I know a group of investors in Marin, consisting at least one Realtor, who are out evaluating and buying homes, rehab them and then turn around and sell with a nice sum of profit. They do nice job, do not under deliver and they have happy buyers helping them to build wealth. They have bought and sold quite a few houses during the past 6 months and I think they do quite well.

I know because my client bought their upgraded home before it came on the market (they know me) and she is very happy. This works extremely well for her because she is a career person with stressful job, and she does not want to have to deal with doing work on the house.

But they are a team of experts and have a well defined plan to follow.

Good luck,
Sylvia Barry
Marin Realtor
2 votes Thank Flag Link Thu Jan 15, 2009
Sylvia Barry,…, Real Estate Pro in Marin, CA
OK, reality check - there are some great homes out there right now at some lovely prices. There are some great tax advantages and some income to be made - but have you sat down and run the figures? You would be have to pay on capital gains if you don't live in the home long enough as a primary residence and with three homes that could prove interesting.

Interest rates and loans that you would qualify for are different for investment property than for a personal residences (but if you intend to reside in it while you are selling your other home....), how long do you intend to live in it? Is there really a good reason to move out of your existing home into another home when you put your home on the market, or are you planning on "what-if's" in case your current home sells quickly, then you have to find a place to live until you actually relocate? Is your plan to find an already fixed up investment home and move into it, then fix up your existing home to put it on the market so you'll get more for it, or to find an investment property that you can fix up and hence make more money on?

Can you handle 3 mortgage payments at the same time (presuming that the first two homes aren't already paid for).

The more times you move your furniture, the harder it is on your furniture and unless your investment home is as large as your current home, will everything fit, or will you need to put some things in storage or get rid of some items?

As you can see, there are many factors to consider, and the market is only one of them.

For reference, there is still money to be made in investment property. What we are seeing, is that as many people who don't have sterling credit can't qualify for loans to buy, they are turning back into/staying as renters so the rental market is increasing at the moment. As a Realtor, we get a lot of calls from people looking for lease purchase homes as well as regular purchases.

I did the stats recently and there are still areas in the metro st louis area where the home values over all have never dropped, there are other areas, where they have taken a nose dive. As Bob noted in his comments, look for a home that will work for you, but work with a Realtor who will run the numbers for you and help you to find a home in an area where the market is continuing to climb, rather than an area where the market is slidng downhill.
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0 votes Thank Flag Link Thu Jan 8, 2009
My story: I purchased a foreclosed house for $78,050 in October with the intention of keeping it as a rental for at least two to three years. While I was taking down some limbs and obtaining contractors estimates, a neighbor came by and offered to buy it from me for $140,000.

You should not expect this to happen to you. I bought wisely with the intention of holding. We just got lucky
1 vote Thank Flag Link Thu Jan 15, 2009
Jim Walker, Real Estate Pro in Carmichael, CA
I would certainly consider investing in this market, however it is very difficult to play the 'flipping' game right now... unless you have a very large amount of cash where you can purchase short sales or foreclosures, put money into them right away, and afford to have it vacant for awhile. The days of the three month flip, in my opinion, are not going to return for some time.

Having said this I would certainly encourage people to look in this market. With rates under 5%, and prices down everywhere, this is the best time to buy a house since the 1960s. The key is to purchase somewhere that has an intrinsic value, where other people want to be.
0 votes Thank Flag Link Thu Jan 15, 2009
This is a great time to flip houses. Properties are very cheap and sellers are more motivated to sell their homes than ever. You can start with a small property and work your way up. Or, you can do what I did and begin to get into property flipping by doing some form flipping (wholesaling) to get your feet wet.
0 votes Thank Flag Link Mon Jan 12, 2009

It is our opinion that buyers can successfully "flip" in any market as long as it's the right property, in the right location and purchased at the right price.
0 votes Thank Flag Link Fri Jan 9, 2009
I see by your zipcode that you are currently living in the midtown area and you haven't indicated where the house is located that you are considering. This area can be hit or miss as to whether you will have many buyers as there are a number of foreclosures in your zipcode. Regardless of where the house is located, you should investigate the market near the home. Have your real estate agent show you homes that are of the same value that the home you are considering will be priced when you're finished making the improvements. Take into consideration the days on market, the original price and how many price reductions there have been. If after doing the analysis you want to proceed, then have fun and make money. One important thing though, if you need to borrow money, the banks are requiring 25-40% down in order to lend money on investment properties and the interest rates also not as favorable as they have been in the past. Good luck!!
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0 votes Thank Flag Link Thu Jan 8, 2009
There are amazing opportunities to buy investment property right now. However, selling investment properties right now is not the best idea. If you find a steal then go for it, just be sure that you or your agent is realistic in picking comps for the sale price. Even homes that are priced well, can take a long time to sell given the current market.

The strategy I am using for myself and recommending for my investor clients is buying single family homes that are ideal for flipping and also good for the rental market. Then rent the property for a year or two before selling. The spread between the purchase and sale price will be better, the tax rate will be less on the income earned from the sale, and you can enjoy a little cash flow in the mean time.
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0 votes Thank Flag Link Thu Jan 8, 2009
Now is the best time EVER to buy...Just buy smart & bid low....For your situation I say, yes, live in the house while you make renovations instead of renting. The condition of the property you are selling should be Martha Stewart-clean and move-in ready...all the time. Also, use a buyer's agent. You do not save money by representing yourself...especially when the seller is professionally represented. The agent commission is built into the owner's listing contract and paid to the listing agent regardless. (The listing agent shares their commission with the buyer's agent.)

These are the guidelines I offer by investment clients:

1. Know the value of the area homes -- Buy what and where you know.
2. Consider potential resale, even if you are not selling for a while...if a house is by power lines or a major highway now...those drawbacks will still be there in ten years when you need to sell.
3. Know your capabilities...if the property is a tear down and you do not do major construction - don't buy even if it is a great will end up costing you in contractor fees and mistakes.
4. Especially with popular properties, you will be competing with homebuyers who aren't looking to turn the property...they'll be willing to pay more...therefore, the conditions of your offer have to be better: Faster closing time, non-contingent on house sale, AS IS, not contingent on financing, etc.

Good luck. Dana Tippit
0 votes Thank Flag Link Thu Jan 8, 2009
I would invest in a city/state which has a stable job employment market. Purchasing now is a great time I am not only a realtor in Dallas TX but a real estate investor. Dallas has a strong market for investors vs. other states. If the home has a equity allows you care it why not make a profit interest rates are low.
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0 votes Thank Flag Link Thu Jan 8, 2009
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