What Does Flipping Houses Mean?

by Charlie Robinson ; Updated July 27, 2017

Flipping a house is a slang term used to describe the act of buying a house and then quickly selling it weeks after purchase. Generally, houses that are the subjects of flipping are somehow out of favor with the purchasing public and therefore tend to be listed at a deeply discounted price. Individuals or flipping companies work to repair the home and restore the value of the property, and then sell it for a profit.

Candidates for Flipping

Homes that are flipped often have been neglected by previous owners in one way or another. They might be lacking the necessary upkeep a home demands or might have more serious structural issues, such as rotten wood, termites or electrical problems. Flippers are looking for a diamond in the rough, an undervalued property in a nice neighborhood with untapped potential that will yield them a positive return on their investment. The practice of flipping essentially involves purchasing a home, fixing it up and selling it for a quick profit.

Considerations

When deciding on a house to flip, it is important to estimate the overall structural integrity of the home. A house with rotten wood or termites will cost more to repair than a home with healthy wood. It is important that the electrical system is intact and up to code as these types of repairs can be costly. If there is a central air system, all ducts and filters must be checked. In addition, a flipper needs to assess what is needed to improve the appeal of the home's design and whether the necessary changes fit the overall budget.

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Overhead

There is considerable overhead when flipping a house. A budget must be set for the cost of materials needed for the repair and renovation of the house. A contractor must be hired as well to oversee the repair process and orchestrate the movements of the various parties involved in the project. Also, there is often a mortgage associated with flipping a house. This becomes an issue if the project runs beyond deadline, because every month the house goes unsold, the flipper must make a mortgage payment. Finally, inspectors must be called in to make sure the home is up to regulatory code.

Expected Earning

Before purchasing a house to flip, it is important to have a target price at which to sell the home. It is important to research the local housing market and the values of homes in the neighborhood to give the flipper an idea of the potential profit. If a house is undervalued relative to the houses in the same neighborhood or street, and provided it does not have any underlying structural issues, it might be a great candidate for a flip.

History of Home Flipping

Flipping homes became something of a fad in the 1990s and early 2000s. People were lured into flipping by what seemed like the endless appreciation of home values, low interest rates and slack mortgage requirements. Today, following the bursting of the housing bubble, home value appreciation is no longer considered a given and loans at attractive rates are much harder to secure. As a result, home flipping is no longer a sure way to make a quick buck.

About the Author

Charlie Robinson graduated from Boston University, where he received Bachelor of Arts degrees in English and Spanish. His articles are largely informed by his experience as a web developer and as an independent equity trader. His favorite topic still remains NHL hockey, especially as it concerns the Boston Bruins.

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