The idea of buying a property in need of care, fixing it up and selling it for a profit is not new. House flipping has been a cultural phenomenon for decades now, with everything from books to television shows promising to help aspiring real estate investors make the most of their money and effort.
Home flipping can be a great career move. It allows you to capitalize on your skills and your existing financial resources. It also takes a property that many people could not upgrade on their own and turns it into a livable space. Before you make an offer on a home with the intention to flip it, make sure you evaluate it for three of the biggest risks that come from property rehabilitation.
Issues with title that you can’t resolve quickly
Many times, a property in need of rehabilitation may transfer from person to person repeatedly. Owners could lose the property to foreclosure because they don’t have the money to make the repairs while paying the mortgage. There could also be issues with older properties in need of rehab if their sale is part of an estate.
Title claims by family members and blemishes on the title can complicate your situation when you go to sell the property or attach a mortgage to it. Many house flippers learn the hard way that quiet title actions are often necessary for the homes they want to sell.
An asking price that does not accurately reflect the work required
Sellers unloading a property in desperate need of work are often eager to list all of the known defects. They don’t want to face claims that they didn’t disclose something to the buyers.
When you review all of the issues with the property, it is important to put a price on all of that work. That way, you can make an offer that reflects the true value of the property and the investment you will need to make to eventually sell it again.
A seller who lists the property as-is to avoid disclosing issues
Although real estate law is quite clear that sellers have to disclose known defects regardless of how they sell the property, some still try to hide things from buyers.
They might look at the property as-is and then not tell you about the serious electrical or foundation issues that could cost you tens of thousands of dollars to fix. You need to be able to identify the signs of the most expensive repairs on your own and also establish connections with an inspector who has a skill for identifying latent defects.
Recognizing the risks when you want to flip residential properties can help you make better decisions about your new business model and individual properties.