House Flipping 101

Making money in a volatile real estate market

The key to flipping a house is to buy it and quickly turn around and sell it for a tidy profit. House flipping is more prevalent when home prices are rising quickly and less common as price appreciation has slowed. Interest rates have gradually increased from a prime rate of 4 percent in 2003 to 8.25 percent in 2007, also hindering activity.

The biggest aspect of house flipping is putting as little money into the property as possible and owning it for as short a period as possible. If you can obtain 100-percent financing for the purchase price or find some kind of private funding, do so. This kind of real-estate investing is about profiting from an irrational marketplace. Why invest your hard-earned capital in this investment when you can put it somewhere else that you intend to hold for the long term? House flipping is the ultimate play on other people's money. You are essentially trading a commodity, just like gold or silver.

Sometimes house flipping does involve a little cosmetic restoration in order to make the property more marketable. Only when the return is high enough should you consider putting cash into a deal. Important areas to spruce up are the kitchen and bathrooms. You don't necessarily have to replace them but rather buff them up to a perfect shine. One of the best investments in the bathroom is a new toilet seat. Somehow, this little item seems to reassure homebuyers that the house is in good condition. Another quick and cheap solution is to take the kitchen cabinet doors off their hinges, sand them down, and then prime and paint them white. It will give the kitchen a modern, bright appearance and is cheaper than investing in all new cabinets. Finally, painting the inside and outside of the house will make an older home appear less aged.

The best house flippers know exactly what a specific improvement is worth in a quick renovation. Beyond the kitchen, bathroom and painting, there is very little that can add substantial value to a house. It doesn't make sense to do anything extra because it won't pay off in extra profits. Return on investment should be your only concern if you are a house flipper. Everything else is a waste of time and money.

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