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January 24, 2013

House 'flipping' is back

Even in this market, investors are making money on real estate

(Continued)

By the same token, Paffrath says there isn't a lot of flipping going on in expensive housing markets like Seattle. The average cost of a home -- even one in foreclosure -- can be more than an investor wants to tie up. After all, they aren't using "other people's money" now but their own.

Adding value

Another difference with today's flipping is the requirement to add some value. That usually didn't happen in the bubble days because it didn't have to. It was a "sellers market." Things are different now.

With the housing market still on the mend, Paffrath says the only way you're going to make a significant profit on a flipping project is to actually flip the house -- and quickly. That means going in, updating out-of-date appliances, making all of the necessary repairs, both major and minor, and doing an overall renovation to the home. You'll have to spend money. Just don't spend too much.

"If you plan on renovating the home, you run the risk of over-improving – meaning that you improve the home beyond the scope of the rest of neighborhood," Paffrath said. "Buyers aren’t going to spend $200,000 on a house, when the rest of the homes around it are only worth $100,000. So, you have to know exactly what the area around you is worth before you start upgrading anything. Otherwise, you could end up wasting a ton of money."

Flipping could become even more widespread as the housing market continues to recover. Paffrath points out that last last year FHA waived an anti-flipping regulation that would have prevented the agency from insuring homes that were sold within 90 days of being purchases. He thinks they did it to encourage more people to start flipping, which would, theoretically at least, jump-start the housing market.

Story provided by ConsumerAffairs.

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