What is House Flipping? | Real Estate Definition

By April 24, 2012 TERM
Flipping-Real-Estate-Term

What is Flipping?

In real estate, flipping means investing in a property by buying a property, fixing it up over a short period of time and selling it for (hopefully) a profit.

Real Estate Agent Explains Flipping

House flipping is a form of direct real estate investment and can be done in a variety of ways. The general idea in flipping a house (or condo) is to find something that is undervalued by most buyers, purchase it, improve it in a way that is attractive to home buyers and then sell it. Of course if only it were that easy.

Specifically, because value is sometimes intrinsic, it is possible to create value in real estate by giving buyers what they want. For example, renovations are a lot of trouble for most people – if that trouble was taken on by someone else, a buyer may pay more for a property to avoid having to renovate it themselves. If the buyer will pay more than it cost an investor to renovate a property, the investor will make money on the flip. To learn more about intrinsic added values, see 4 Surefire Tips For Staging Your Home To Sell.

Improvements with a house flip can be purely cosmetic, structural, functional or a combination – it all depends on what the home needs, what buyers may want in a home and what happens to be in style at the time of the flip. Things that are often replaced during a house flip are kitchen and bathroom upgrades, flooring replacement, window replacement and trim and paint. The degree of the flip depends on the market for the improvements. Some house flippers just do paint and trim and do a good cleaning and sell the property, some will completely gut the house, change the layout and do interior and exterior renovations. The goal is to balance a high selling price with a quick house flip.

Often a house flip can only be done when the market is ‘hot’ (meaning home prices are rising). (For more on how to predict a hot market, see What is the Hot Market Index?)

It should be noted that house flipping is a very risky investment, and always should be done with caution, proper planning and professional advice. As with all investments, never use money you can’t afford to lose. The most common issues with house flipping are taking too long to do renovations and doing too much to a home when the renovations will not be appreciated and paid for.

Before renovation - a 4-piece bathroom with double sinks and a jetted tub

Before renovation: a four-piece bathroom with double sinks and a jetted tub

3 becomes 4. A double sink and jetted tub are exchanged for a single sink and frameless shower

After renovation: Three becomes four – A double sink and jetted tub are exchanged for a single sink and frameless shower.

Why Does It Matter?

Real estate is one of the oldest investments around but house flipping is a very new investment strategy. It is another way to make money on property that is quicker but it is also riskier than buy-and-hold investing strategies. House flipping is now a common form of real estate investment and was popularized during the real estate boom of the mid-2000s. To learn more on the differences between buy-and-hold and house flipping, see Two Ways To Invest In Real Estate.


 

by +Alan F Macdonald REALTOR® | Copyright © – gimme-shelter.com

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Alan F Macdonald

Author Alan F Macdonald

Alan F Macdonald is a real estate agent with Maxwell Challenge Realty in Edmonton, Alberta.

More posts by Alan F Macdonald

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