Back in 2012, house flipping seemed like the perfect opportunity for a person with extra cash and an eye for remodeling. The market was flush with homes left vacant from waves of foreclosures prompted by the housing bubble that burst a few years earlier. You could buy a home from a bank, make any necessary repairs, install hardwood floors, splash on a fresh coat of paint and then sell it at the top of the market.
Nowadays, with a strong economy, more and more potential flippers have that extra cash in hand. And they’ve been studying TV shows like “Flip or Flop” on HGTV and “First Time Flippers” on the DIY Network, just waiting to find the right bargain to start their flipping career.
But with the housing market back to pre-recession levels, the number of homes coming on the market each month is low. Bidding wars are beginning the day a property is listed, driving home sales above asking prices in many cases. Buyers willing to pay more to occupy the home they purchase are having a tough time finding affordable real estate, which means it's even tougher for investors looking for houses at rock-bottom prices.
With a tight inventory and no expectation for single-family home development to catch up with demand any time soon, is it still possible to make money in the house-flipping game?
“Absolutely,” says Vincent Harris, CEO and co-founder of Hoozip, a startup that creates productivity and lead management products for real estate investors, but the way you find those profitable investments has changed.
The old recession-era practice of buying a house at auction for cheap, doing a light rehab and selling it for a profit a month or two later is far less likely these days. In the second quarter of 2018, just 32 percent of home flips nationwide were purchased as a distressed sale – a foreclosure or bank-owned sale – according to ATTOM Data Solutions. That’s down more than 6 percent from the same period in 2017 and less than half the rate in the first quarter of 2010, when purchases of distressed properties for flipping peaked at 68.2 percent of all purchases.
It’s not just a matter of fewer homes going on the market – the home-flipping industry has transformed in the last few years. You’re not just competing with local professional flippers; bigger companies and even giant investors, often referred to as iBuyers, have come on the scene.
Flipping has become a much more mainstream endeavor, as more and more companies such as Opendoor, Offerpad and even Zillow are offering quick, all-cash purchases for homes with the intent to flip and sell them for a profit. These companies certainly offer more options to home sellers, but their presence creates a more competitive atmosphere for other investors.
But that's still not stopping people from trying to flip homes – it's just changing what’s required of an investor to be successful. You not only have to be able to find the right house with an owner who is interested in selling, but you also need the financial means to be able to get through the actual work and marketing stages before you can see a payout.
Ted Karagannis, a licensed real estate broker for Warburg Realty, says the New York City market slowed in the earlier parts of this summer where buyers showed interest in properties but didn’t make offers. Sellers were left waiting, either looking at reducing the asking price or taking the property off the market until it picked back up later in the season.
“If you do have to carry [the property] for three to six months, you have to estimate that all into the purchase price as well,” Karagannis says.
There is an advantage to being a part-time flipper, however. While bigger investors must compete with companies of all sizes to stay afloat, a weekend warrior hoping to put his DIY skills to use for a profit doesn’t see a smaller payout as detrimental to his livelihood. “If he makes $20,000 on a deal, that’s great,” Harris says. That $20,000 could be a year’s worth of college tuition for the flipper’s child or a new roof on his own home.
Some good news for those who want to begin real estate investing, either by flipping homes or serving as a landlord: You don’t necessarily need to have the capital to buy property with cash. Susan Naftulin is the owner and president of Rehab Financial Group, a lender for real estate investors in Rosemont, Pennsylvania, and she says her firm takes the pace of the market into account to help borrowers remain competitive with cash-heavy buyers.
“We work as hard as we can to wrap up our side of it and underwrite as quickly as possible so as not to be an impediment,” Naftulin says. Whether you finance or use your own cash, Naftulin says first-time investors should check their expectations before jumping in for the sake of their own finances. “Better to make your mistakes with a smaller rehab and a smaller loan than bigger,” she explains.
Plan your home remodeling project carefully, and consider your skill level combined with your budget.
Here are three things you can do to increase your chances of earning money through house flipping.
Invest small and smart. If you still want to try flipping a home, don’t go for the former crack den with burst pipes and a hole in the ceiling. Naftulin says you’re more likely to turn a profit with a home that doesn’t need much work, but can sell at a higher price point with minor fixes and some skillful staging. It'll also be easier to entice a lender when less risk is involved, especially if it's your first dive into real estate investing.
Your profit won’t be gigantic, but you won’t have inadvertently bought a money pit, either. “You don’t make a lot on each property, but you can do a lot of houses,” Naftulin says.
Once you're able to ensure the house doesn't have problems lurking beneath the surface through an inspection and you've checked on the title for liens or other legal issues tied to the property, adding smaller cosmetic changes can draw buyers in. “Make it a little more special than the norm,” Karagannis says. “That can be done easily with good hardware or plumbing, sink faucets [and] things like that that can attract people.”
Both Naftulin and Karagannis stress the importance of doing more research and digging deep on a property before you’ve even put an offer in. You want to know that the home, the property history and the neighborhood all lead to a good investment in the end.
Karagannis says in New York City, knowing the ins and outs of a condo or co-op building’s management and fees is a must to avoid a failed investment. “Is the building a healthy condo, or is the condo like a hotel where people are coming and going every six months to a year? What are the qualities you’re buying when you’re looking at real estate?” he says. “A lot of newcomers don’t know any of that, and they make huge mistakes.”
Invest in a different way. Rather than looking for properties on the local multiple listing service, try finding properties that aren’t on the market but have owners who are more likely to be interested in a sale proposition. Part of Hoozip's offering is to help customers analyze property data and determine which homes are a worthy investment. In addition, property records available through local assessor's offices can provide property tax information and show how long the property's been owned by the same person, though conducting such searches on your own may be time-consuming.
Harris says that can range from high equity in a home to delinquent property taxes or an owner who recently moved out of state. But because you’re dealing with individual owners – who are possibly facing financial issues or just suffered a death in the family – empathy becomes are big part of being a successful investor.
If you can balance the ability to make the seller feel valued while also coming off as a professional, you’re more likely to see success. “They want to deal with someone who’s credible,” Harris says.
You could also try purchasing and holding onto your property for rental income, though you would also take on the role of landlord – and all the maintenance and management responsibilities that come with it.
Wait for the economy to tank. It’s not an optimistic approach to real estate investing, but when it comes to flipping houses, you need a surplus of homes for sale to be able to snag good deals on properties to flip. The only way to really guarantee an excess supply of homes is when people can no longer afford to live in them. And that means an economic downturn. But the current outlook remains bright for real estate values and the larger economy.
Stock up for your next DIY project.
If you're always finding new home improvement projects to take on, you're not alone. In a 2015 study of 500 do-it-yourselfers by Venveo, a digital marketing agency and parent company of DIYConsumer.com, 58 percent of respondents said they do a DIY project either because it's a simple project or they find the work fun, while another 39 percent said they want to save money. Regardless of your reason for taking on a DIY project, you need to be prepared with the right tools. Read on for tools every DIYer should have to tackle home improvement, maintenance and crafting tasks. We've included a price range for each tool, based on current prices at various home improvement retailers like Home Depot and Lowe's, to help you plan your purchases.The basics
These DIY and maintenance must-haves help set you up for success. They're simple tools that are fairly inexpensive yet key to ensuring your safety, avoiding damage or making mistakes while you work.The internet
Especially if you're new to DIY projects, take advantage of the free resources available online to help you figure out the best way to build something, make a repair or master regular maintenance you've never done before. "The information is the power," says Chris Zeisler, master technician and technical service supervisor for RepairClinic.com, an online marketplace for appliance and repair parts and equipment. Zeisler recommends watching tutorials and informational videos on YouTube or advice sites like RepairClinic.com to get a better understanding of what you need to do. If you're still nervous about the job after watching tutorials, consult a professional.
Cost: Nothing beyond the cost of your Wi-Fi or mobile data plan.Safety glasses
Regardless of skill level, eye protection is a necessary part of any project you take on. Safety glasses are particularly important when doing tasks that can create debris, like sawing, drilling, spraying paint or using a sealant.
Cost: As cheap as $1.50, or you can go all out and get prescription safety glasses, which can put you back a few hundred dollars.Tape measure
The saying goes, "Measure twice, cut once." So naturally, you need to be able to measure when it comes to cutting wood for a bookshelf, framing your artwork or simply figuring out what size couch you need for the living room.
Cost: Less than $10.Level
Keep your home from looking like a college dorm room and use a level to hang any wall decor. A level is also an important tool when building or repairing anything that's supposed to have a flat surface – a DIY nightstand isn't quite as nice if your glass of water keeps sliding off a slanted tabletop.
Cost: Free phone apps are available, or you check out torpedo, beam or laser levels ranging from $4 to $30.Drop cloth
Whether you're painting, sawing, drilling or gluing, keep your floor or driveway from getting damaged by placing a drop cloth beneath your workspace.
Cost: Use an old bedsheet for free, or invest in a canvas or plastic drop cloth for $7 to $10.Wood glue and other adhesives
Wood glue and other adhesives
Plenty of DIY projects and repair scenarios can be strengthened with a little extra sealant. For wood projects, use wood glue to back up screws and nails. When wood isn't the material you're working with, a super glue or all-surface construction adhesive can help get the job done.
Cost: Depending on the type of adhesive, expect to pay $3 to $12.Stud finder
If you're hanging a picture frame or shelf, a stud finder allows you to find the best possible place to anchor a nail or screw – without worrying whether it will fall off the wall later. When you're cutting a hole in the drywall, the same stud finder will help ensure you don't cut through an important part of the structure of your house. Studs in residential buildings are typically wood, but a stud finder using magnetism often still works by locating the nails in the stud. More sophisticated stud finders will detect the differences in density along the wall.
Cost: Depending on type, it will cost between $10 and $50.Ladder
A 12-foot ladder isn't necessary if you're an apartment dweller who relies on the property manager for most maintenance issues, but a short stepladder can always help you reach the top shelf in the kitchen or get a better angle while hanging wall decor. In a house, a taller ladder can come in handy for cleaning out your home's gutters, as well as reaching high-up spots while painting, cleaning or decorating inside.
Cost: Depending on height and stability, a ladder will cost anywhere from $40 to $1,000.Hand tools
You don't need construction experience to use these household tools skillfully. These simple tools are an important part of being able to make small, straightforward repairs at home, whether you live in an apartment, condo or house.Clamp
In DIY scenarios where the wood glue comes in handy, you'll typically want a clamp to help serve as additional security while the adhesive dries. Clamps also help hold wood and other materials together or in place while you're sawing, drilling or sanding and need help keeping the materials steady. You can opt for a simple C-clamp or bar clamp, which will suffice in relatively simple projects.
Cost: Expect to pay between $3 and $20, based on the size and type of clamp.Screwdriver
Securing a dresser to the wall or finally putting that Ikea coffee table together will likely see you reaching for a screwdriver. Screws vary in shape and size, so Zeisler recommends checking out a set of screwdrivers with interchangeable screwheads to keep the number of screwdrivers you own down, while still having access to the Phillips head, flat head, Allen wrench (hexagon), Torx drive (star) or Robertson (square).
Cost: Either invest in a set of screwdrivers with different heads or get a multibit screwdriver, which both run from about $7 to $30.Wrenches and ratchets
Wrenches and ratchets
Whether you're tightening a bolt on your bed frame or building a deck in your backyard, a wrench or ratchet and socket set is a must-have. Like with a screwdriver, Zeisler recommends checking out investing in a set to help reduce the total number of wrenches you need, and ensure you have the tool for every possible scenario. "You can get more than one thing and more than one component," he says. "Instead of having seven or eight combination wrenches, you can get one particular tool that has a combination of all those on one assembly."
Cost: Sets of wrenches with additional adjustability typically cost around $20. Ratchet and socket sets typically start at about $15.Claw hammer
A hammer almost seems too simple a tool to have, but you'll find yourself needing one quite often, whether it's to hang a calendar on the wall, construct a birdhouse or repair siding on your house. A claw hammer is often the recommended go-to for DIY projects because the backside of the tool also allows you to pull out nails as needed.
Cost: Depending on the brand, expect to pay $5 to $40.Pliers
You may need help pulling something apart or holding it in place while you apply an adhesive – and pliers are an effective tool in both cases. Some pliers are specially designed to help cut or strip wire as well, which helps if your project requires some basic electrical work. In such cases, always have the power turned off and call a licensed electrician if you're not sure what you're doing.
Cost: Pliers range from $9 to $40.Utility knife
You could be opening a package you got in the mail or cutting dowel rods that don't quite require a saw, but having a utility knife specifically for home improvement purposes means you don't have to ruin your kitchen knives to complete simple projects.
Cost: Utility knives range from $5 to $45.Handsaw
For a bigger cutting project, have a handsaw ready. This is one tool you want to have your safety glasses on hand for, along with gloves to protect your hands. Before getting started, mark the wood or material you're cutting with a pencil and straightedge to ensure you cut along a straight line.
Cost: Handsaws run between $9 and $25, so there’s no need to break the bank.Power tools
For some projects, you need a bit of additional power behind it. Enter the motorized tool. "If you're going to be in an apartment or condo where it's going to be smaller projects, I don't think power tools are going to come into play," Zeisler says. "But if you’re a homeowner, you've invested in a mortgage [and] you're in the home, you're probably going to want to start getting familiar with some of that."Drill
As you get into more skilled DIY projects, you'll likely need to use a drill to put holes in wood, masonry, plastic or other materials. Different drill bits are used for different scenarios, and most good DIY tutorials will tell you which one to use for setting screws or creating a clean hole. Like with a saw, always use eye protection.
Cost: Cordless power drills run between $50 and $130.Sander
When building a bookshelf or giving your current one a makeover, sanding is a key step before the staining or painting phase. A sander takes a painting or staining project from time-consuming to convenient. Many DIY bloggers recommend a 5-inch orbital sander, as it's relatively easy to handle.
Cost: A sander will likely cost between $40 and $70.Nail gun
When your DIY skills are more advanced, a nail gun might be the tool to help you up your game. Like with a sander, a nail gun makes the time-consuming process of hammering nails happen in a fraction of the time, though it requires a certain level of caution and some more money. There are also different types of nail guns for the project at hand – flooring, roofing and building furniture all use different types of nails, for example. Some of the more sophisticated nail guns require an air compressor, which may come with the tool or need to be purchased separately.
Cost: Expect to pay $80 to $650 or more, depending on the type of nail gun you select.Circular saw
If you're looking to build furniture or upcycle some key pieces, many DIY tutorials call for a circular saw to cut larger amounts of wood. The circular saw is recommended as the more basic option and is less expensive than a table saw – not to mention, it'll take up less room in your garage.
Cost: As low as $39 or as high as $500.Read More
See more Real Estate slideshows:
Updated on Sept. 7, 2018: This story was originally published on April 20, 2017, and has been updated with new information.
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.