The Truth About House Flipping

A few years back, when real estate was doubling and tripling in price in neighborhoods all across the country, flipping houses was all the rage. In fact, there was even a TV show or two devoted to the practice and it featured people making money hand over fist by buying properties, fixing them up, and then selling them for huge profits.

The concept is nothing new, it's been around for years and has always been an option for making money in real estate, especially for those who are handy. The idea is that you locate a distressed piece of property in a decent or at least average neighborhood, buy it, fix it up so that it meets community or neighborhood standards, and sell it.

Even in these tough economic times, advertisements abound for seminars that claim they'll teach you the secret to house flipping and help you make your own fortune through the process.

It sounds great, but I'm here to tell you that more often than not, you can put a lot of time and hard labor into a fix-and-flip and have nothing to show for it except a loss on your books.

How could this be? Simply put, when it comes to fixing and flipping, time is money. Starry-eyed newcomers to real estate typically underestimate the amount of time and money it will take to fix up a property. They also underestimate the amount of time it's going to take to find a buyer. At the same time, they overstate the amount of money they're going to earn when they finally sell the property.

While they're busy underestimating and overestimating, the bank is busy collecting interest, because as I said, time is money. The longer it takes to sell a property, the smaller the profit and the greater the amount of money the fix-and-flipper will pay to the bank.

And then you need to consider the risk factor. What if you buy a house today and the real estate market turns even lower, so that you can't even recoup your initial investment when you come to sell the house? Or what if you knock out a wall in the house and discover, to your horror, additional repair problems that are both expensive and time-consuming? To paraphrase Forrest Gump, a fixer-upper is like a box of chocolates-you never know what you're going to get. But the one thing you are not likely to get, I'm sad to say, is a profit. There are too many variables, too many uncertainties, and overall, too much market risk.

Fixing and flipping, unfortunately, is not the path to real estate wealth for the novice or in many cases, even the more experienced. It's a risky endeavor that involves a lot of work, a lot of time and more luck than the seminar peddlers would have you believe.

The bottom line is that real estate is still the very best investment out there. But house flipping, buying foreclosed properties or property in probate is not a secret, fast path to wealth. How can you make money in real estate? By using a turnkey approach that is disciplined but very effective.