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Flipping Real Estate Can be Risky Business
from: Mike Colpitts The art of flipping property may seem like the road to quick
riches, but it's anything other than that for the majority of
investors. Only a small percentage of people who buy real estate
to flip it actually make a quick profit, according to a new
survey.
Flipping property is the business of buying real estate, making
repairs to it or playing a rapidly appreciating real estate
market to make a quick profit.
Flipping real estate may be part art, part business. But in a
survey of 500 of the Nation's wealthiest real estate investors
only 10.4% made a profit. The survey was conducted by Real
Estate Add, an information driven real estate website.
Nearly half of all investors surveyed ended up holding on to
their property for more than a year after the original purchase.
Some 52% said they broke even and had to hold on to the property
for much longer than they originally intended. The remaining
nearly 38% suffered a loss.
Rick and Mary Coughlin of Santa Rosa, California purchased a
3-bedroom, two-bath home, which needed repairs. The Coughlins
went about getting contractors estimates for the work before
purchasing the home. Estimates ranged from $18,000 to $31,000.
The Coughlins purchased the home, which was built in the
mid-1970's, budgeting $40,000 for the work with the idea that
they would do a lot of the repairs themselves. However, they
encountered problems when they opened up one of the bathroom
floors to find dry-rot that far exceeded their expectations.
The couple did most of the work to the home themselves, but
still retained a contractor to do some of the repairs, including
the bathroom, kitchen floor, kitchen counters and replacing a
wall in the livingroom.
"We had made pretty good money flipping property up until that
home," said Rick. "But the profits on five other homes were
going down the drain on this one. It took us five months and
three contractors to get the job done, and then by the time we
sold it the place was eating us alive."
The Coughlins had a mortgage with taxes and insurance on the
home of nearly $2,900 a month. Mary would paint the inside
evenings after work. Rick spent evenings and mornings at the
place between work hours. The stress of turning a profit on the
home seemed near impossible.
The Coughlins were successful flipping five homes before this
one, making nearly $300,000 in profit over three years. But this
home turned into a nightmare. One of the bedroom floors caved in
when Mary was moving furniture and had to be replaced by a
contractor at a cost of $17,423.00, including walls that needed
to be replaced as a result of damage to the room.
The bathroom turned into a $21,000.00 project and the Coughlin's
luck seemed to have run out. Including contractors fees and
building supplies, the Coughlins spent $107,000. Once they sold
the house seven months after buying it in a hot California real
estate market the Coughlin's were pleased to be free of the
mortgage.
After all expenses and payments the Coughlins figure they were
lucky, spending $131.000.00. This was their sixth flip so they
had experienced success before and they were banking on these
funds to help pay off a second mortgage on their primary
residence. Instead, the Coughlins suffered a loss of nearly
$90,000. The home sold for $624,000.
Nearly a year after the sale on the home, Rick said that was his
last flip. "You don't realize how risky it is until you hit the
wrong house," he said. "We were lucky to sell that place."
The Coughlins are typical of real estate investors who take the
risk to quick riches. Rick and his wife have since bought a
rental home they intend to hold on to for at least 10 years to
make a substantial long term profit. Overtime pay has helped
them to pay-off the second on their principal residence.
Rick's best advice to others considering a flip is to purchase
property in an area where the prices are lower and hold on to "a
lot of the cash."
About the author:
Mike Colpitts is the Publisher of Real Estate Add.com, an
information driven website providing the latest market
conditions on real estate markets in all 50 states, where you
can also search for your next home. Visit
http://www.RealEstateAdd.com
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