Is flipping coming back our way?

Property flipping regains traction in Chicago area

Mary Ellen Podmolik / The Home Front /October 4, 2012 / link
Property flipping regains tractionMike Baird and Doug Clark, who have been flipping homes together for seven years, advise newcomers to the business to research an area thoroughly before buying properties. (Spike TV, Handout / October 4, 2012)

Property flipping is gaining speed again in the Chicago area.

During the first six months of the year, 1,067 homes were flipped in the seven-county Chicago area, a 30 percent increase from 2011’s first half, according to RealtyTrac, a real estate data provider.

That’s still way down from 2010, and as prices start to move off the bottom, some would-be investors may decide they’ve missed their opportunity. However, home prices remain at levels not seen since the early 2000s, which means there are still ample opportunities for investors.

The Chicago area’s year-to-date flipping volume mirrors that of the nation, where the almost 100,000 flips that took place in the year’s first six months were a 25 percent increase from a year ago.

By RealtyTrac’s definition, a house is flipped if it’s first sold at a discounted price and then resold, typically within 90 days, for market value, which assumes that improvements were made to the property. The majority of flipped properties are thought to have come from distressed sales.

It can be a profitable endeavor for the right person. In Cook County, for instance, the average gross profit for a flipped property, not including the rehab costs and carrying costs, was more than $55,000, and it took an average of 114 days to flip a property.

That profit potential was the reason why Mike Baird and Doug Clark, of Spike TV’s “Flip Men,” got into the business in Salt Lake City.

Baird became interested in real estate and flipping after graduating from college but knew nothing about home repair and maintenance. His father took him to a hardware store, where he learned the difference between a Phillips and a flat-head screwdriver.

Clark was a commercial airline pilot who says “the only thing I knew about real estate was they paid me to fly over it.” After meeting Baird at a real estate auction, he began to shadow him to learn the business and the two formed a company together in 2005.

In a recent webinar for RealtyTrac, the two shared their advice for newcomers to the business.

Do plenty of research. Pick an area, a small area, and know it thoroughly, including the average selling price per square foot for homes, when homes most recently sold and how that price compares with historical trends for the neighborhood.

Clark and Baird would play a game of sorts, driving around looking at homes for sale and their square footage and guessing what their selling price would be. Eventually, they started making accurate guesses, which they said meant they understood the value of the area.

Be patient. Be prepared to look at a lot of properties before deciding to move forward with an offer. Baird and Clark may look at the descriptions of 50 to 100 properties a day and only bid on a few of them.

“It’s much worse to buy a bad deal than no deal at all,” Clark said.

“Don’t get frustrated if your first offer, your first deal, your first day, doesn’t work out.”

Forget real estate’s unwritten rule. Adopt a new way of thinking. “In real estate, it’s location, location, location,” Baird said.

“In flipping, it’s price, price and then price again.”

When an opportunity then presents itself, in a well-researched area, potential investors know what price to bid, what renovations would be needed to make the house marketable and what the market price should be.

Consider becoming a landlord. Think about whether the goal is short-term gains or building a portfolio that produces passive income. The flip men have a sizable portfolio of rental properties in addition to their flipping business.

“Holding is a guaranteed victory, in my opinion,” Clark said. “Everyone looks like a genius when you hold a property long enough. Over time, land values go up. I call it BYOR: Bring your own retirement.”

Author: kimhuntkw

We specialize in Real Estate in the Pleasanton, Dublin and Livermore areas of the East Bay in California

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