You don’t tug on Superman’s cape. You don’t spit into the wind. And you don’t try to flip houses when the market is going through its worst slump in a generation. Flipping—buying properties, fixing them up, and then putting them back up for sale—seems risky at best.
Or so you might think. Rick Villani and Clay Davis beg to differ. The authors are co-founders of HomeFixers, which bills itself as “North America’s leading real estate rehab franchise.” They insist that this is a perfectly fine time for flippers. They have just written a book called “Flip: How to Find, Fix, and Sell Houses for Profit.” It’s published by McGraw-Hill, which owns BusinessWeek.
Here is what the authors write:
Flipping works in any market. Why? Because it’s about following a process, and that process isn’t tied to any specific market or any particular time period. Your success in buying, fixing, and reselling houses comes primarily from finding value (buying a house below retail market value) and creating value (making improvements that increase the selling price beyond their cost). Finding and creating value always works whether your market is cold, lukewarm, or just plain hot.
That makes sense on one level. But it seems to me that a lot of people who got rich flipping houses in the past few years were more lucky than smart. They didn’t really find value, as Villani and Davis advise, and they didn’t create much value, either. They just rode prices upward, buying low and selling high. As somebody once said: Never confuse genius with a bull market.
Today, when prices are flat to falling, there’s a lot less margin for error in a flipping strategy. In fact, the authors understand the risks. From their glossary, page 376:
Flip and fall The unfortunate circumstance that occurs when you’re about to put a flip up for sale and the housing market tumbles below anyone’s expectations.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.