House flipping was a popular trend in the mid-2000s that quickly wound down once the housing market crash hit. Now, the buying and selling of homes within the same calendar year to make a profit is beginning to make a comeback. However, many of today's flips are approached with a different strategy from those of the new millennium.
According to Trulia, flippers of years past would often buy a low-priced home in hopes that the market value will increase on its own. When it did, they would sell the home for a profit. One of the biggest issues with this strategy is the homes being sold at a higher price weren't actually any better than when they were originally bought.
"Investors need to review the roof, kitchen, bathrooms and HVAC systems of a home."
Today, people are focusing on adding value to the low-priced homes they purchase, Trulia's Chief Economist Ralph McLaughlin told CNBC.
"We think it's a little bit different this time because we think more flips are actually value-added improvements that investors are making to the house, rather than speculative flips which is basically someone buying and sitting on a home waiting for the prices to rise," he explained.
House flippers willing to upgrade homes so they're better suited for homebuyers might be a good thing for the real estate industry in a particular community. But the person doing the work is taking on a lot of risk by investing so much in the home all at once.
"Flipping is a risky business," McLaughlin noted. "If you buy a home that needs a lot of work or you didn't do due diligence you should have and there's some big ticket items you didn't anticipate maybe like a foundation that needs repair or new plumbing or new roofing, those things can take a lot of the profit margins off of that flip."
Obstacles such as those McLaughlin describes represent only a portion of the expenses someone hoping to resell a house might have to budget for. Investors need to review the roof, kitchen, bathrooms and HVAC systems of a home. Renovating any of these on its own is costly, but taking on more than one of these projects will add up quickly.
Plus, for the property to be sold within the same calendar year, those upgrades need to be performed quickly. Because of this, house flippers seek out professionals that not only promise high-quality work, but also offer affordable financing that allows them to make the upgrades they need without having 100 percent of the funds available upfront.
House flipping is defined as the buying and re-selling of a property within the same calendar year. In 2016, 6.1 percent of all home sales nationwide were flips, compared to 5.3 percent of sales in 2015, according to Trulia. While house flipping is a national trend, there are some corners of the country that are seeing more activity than others. Las Vegas is currently experiencing the most activity, with 10.5 percent of homes sold in 2016 having been bought less than a year earlier.
Meanwhile, Detroit and Chicago saw fast-growing numbers of home flips. In Detroit, 6 percent of homes sold in 2016 were flipped, compared to just over 1 percent in 2015. In Chicago, 7.5 percent of home sales were flipped in 2016, compared to 4.7 percent in 2015.
Other popular cities were found scattered across Florida and Tennessee, as well as in California and Georgia.
As more people continue to invest in homes with the intent of fixing them up and reselling them before New Year's Eve rolls around, it's important that dealers are prepared to cater to this unique home renovation market. These people are seeking out quality, but not for themselves. Additionally, while they're willing to pay a fair price for excellent work, they will more than likely appreciate financing programs that allow them to pay for the upgrades over time.
To learn about how your business can offer financing plans to home flippers, reach out to Aqua Finance.