What should I look out for in purchasing a flipped home? Text

Almost everyone probably knows what “flipping” means. When it peaked 10 years ago, it was another way of saying “speculative leveraging.” It meant buying a house beyond your means in anticipation of appreciation continuing on such a steep upward curve that you could resell for a profit. Hopefully, you could do that before foreclosure began because you were unable to make the uncomfortably high mortgage payments. This, in part, was the cause of our national housing bubble bust in 2008. In many places at that time, prices in the real estate market collapsed as much as 60-70 percent.

Many homes were abandoned and then foreclosed on. New owners bought them at very low prices and made a few improvements before first renting them out and then putting them back on the market as soon as possible for resale. This process created the term and the industry of “house flipping.”

Although the market has changed a lot since then, there are still people buying houses and remodeling them and then reselling. If you’re thinking of buying a recently remodeled house, you need to educate yourself and keep the following ideas in mind:

  • Be sure all improvements were done by registered, licensed contractors and were done according to code. Ask for warranties associated with the improvements as well. If someone enlarged the house or changed its footprint, you need to see the building permits.

  • A building inspection is necessary whether a house is renovated or not. Make sure you know the condition of the roof and the air conditioning and heating system. You want to ensure there are not electrical wires buried in the walls or that too big an electrical load is being carried by the old electrical panel. Venting needs to have been done properly for the water heater and other appliances.

  • Make sure the house wasn’t redone in an unusual or particularly expensive way.  “Look at what else is in the neighborhood,” says Mickey Smith of Realty Executives in the Phoenix area. “You also want to know about the school district.”

  • If you’re paying top dollar, be sure the quality is there. “What is the quality of the appliances?” says John Gluch, a Realtor in Phoenix with Re/Max. “What kind of heating and air conditioning is in the house?” Were substantial improvements made or was it all cosmetic?

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