On The Flip Side

Should you invest in a foreclosed house? What is the downside of this type of real estate investment? Is it worth the risk?

Foreclosed or “flipped” houses are houses that have been repossessed by banks or other investors by Notice Of Default. The lenders want their money back and are willing to play “Let’s Make A Deal”. One of the important things is knowing the area where you’re going to be investing. You need to know the comparable market value of the other properties surrounding it so you know what to offer. The majority of the cost of house flipping is fixing the house up. The cost is in the labor so you need to find a home that needs minimal repairs. The main question is how much will the cost of the repairs affect the resale value. Don’t repair anything that isn’t necessary to bring the house back to full sale value.

So what’s the downside? Well, some houses can sit empty for months. Without heat or air conditioning, if there’s a leak in the pipes or water in the basement, mold can be present. To remove mold can cost thousands of dollars. The lenders could have made cosmetic repairs, so just what is under that new paint job?

Since the investor most likely bought the home under “as is” condition, there could be unseen pests that you know nothing about. A termite family could be having lunch on the main support beam. There could be mice behind the walls and bats in the belfry. A qualified inspector will be able to locate problems like this.

And yes, the cabinets look great in the spruced up kitchen, the plumbing fixtures shine and the windows glisten. But, are the cabinets made from pressed board? What about the quality of the plumbing fixtures? Is that the cheap brand of two paned windows and is the drywall a half inch or a quarter inch? Who did they hire to do the work? Was it a legitimate contractor with a trained crew or some fly by night bunch that you can’t even trace? If the drywall was done incorrectly, for example, you won’t know about it until it pops off the wall after you’ve bought the house.

Okay, you have everything checked out and decide to buy the house. You sign the papers, shake hands with the lenders and off you go. Uh oh, problem! You discover that a mechanic’s lien is against the house for unpaid work with a sub contractor. If a contractor didn’t pay for materials or pay the sub contractor, you can find a lien was filed against the house after the home closed in escrow. You’re stuck paying it because you didn’t investigate throughly.

The question is whether buying flipped properties is really worth the risk. Yes, it is. If you know what you’re getting into. If you make the majority of repairs yourself to keep labor costs down. If you have the house in “ready to move in” condition to get the maximum sale value. And if you’re ready for a challenge, then flipping houses could be for you!

By Linda Lee Ruzicka

Linda Lee Ruzicka lives in the mountains of Western PA , happily married and with her 8 cats and three dogs. She has been published in Twilight Times, Dark Krypt, Fables, Writing Village, June Cotner anthology, The Grit, Reminisce , the book, Haunted Encounters: Friends and Family. She also does freelance work for Beyond and Realestatejobsite. You can read more of her blogs on Realestatejobsite blog.