Flipping houses makes much more sense today than it did when I started this website in 2006. Back then, property values were so inflated that it was difficult to find fixer upper homes at large enough discounts to make the strategy worthwhile. No, it was certainly not impossible to find a bargain basement deal – in fact I got my best deal in December 2005 on a triplex in a nice area that I bought for $125K. However, deals like that were few and far between because the competition for such deals was fierce.
Fast forward to the present and the house flip is a much more viable investing option. Prices are depressed and the real estate market is stagnating, yet there are still plenty of buyers out there. Although I still prefer a long term, multifamily strategy, flipping houses is more appetizing than it once was. Of course, it is still not easy because lending money is tight and the economy is flat, but it is definitely doable.
That said, in order to execute a profitable house flip, you must know what you are doing. As such, below is a video that demonstrates an actual case study of a recent house flipping deal in the Houston area. The property shown in the video is a little different, because it was sold to an investing landlord as opposed to a retail homeowner, but there are still lots of golden nuggets in it. The video, which shows a “before and after” of the rental property, is only 16 minutes long and I encourage you to watch it.
The video starts prior to any rehab work being done, at the front of the house and then moves through the front door. Flipping houses obviously requires a plan, and the presenter discusses his plans for the floor – basically to extend the common walkway from the front door to the hallway, and cover it with ceramic tile. The rest of the approximately 1,000-foot floor area (living rooms and bedrooms) was ultimately covered with rental grade 18oz carpeting with a half inch thick padding.
Next, the presenter moves to the kitchen. He explains his plans to replace the stove with a scratch-and-dent model, but that he would not recommend scratch-and-dent for appliances that move water. The rehab in the kitchen involved painting the cabinets, and replacing the countertops and faucet. The light fixtures were also replaced with inexpensive, basic fixtures (since the property is a low-income home).
Next, the presenter takes a look at the bedrooms. The first thing that jumps out is that the windows had bars on them, which were removed because these can actually be more of a liability for a house flip than a safety measure. The 2 bathrooms were pretty decent already, and required only some minor tweaking – for example, the tub was cleaned / acid washed, new sinks, faucets and shutoff valves were installed, and new ceramic tile was laid on the floor.
The exterior of the house had cheap wood siding which was replaced. In fact, the wood siding was infested with termites. The house also needed new flashing, window trim, soffits, and general landscaping work.
The property only took 3 weeks to rehab, and only a few days after that the flipping was complete - it was under contract! The video is awesome because it takes you through the house after the work was done, giving you a true ‘before and after.’ The presenter also goes into some detail on the numbers. The house flip was purchased for only $29K, and required $10K in repairs. The sale price was $59.5K so the gross profit was $20.5K. The gross number excludes closing costs, about 4-5 weeks of carrying costs, insurance, property tax, and misc. expenses. Thus, his net profit is estimated to be approximately $6-$7K. So it seems like flipping houses might be viable after all. Not bad for 4 weeks of work!