House flipping is kind of like taking beautiful photographs — plenty of people think they can do it, but reality says otherwise ... Instagram be damned. It's become part of the national lexicon, in part due to reality TV, late night informercials and a housing crash that came down hard even on those living under rocks. Flipping's main objective is simple enough: buy low, sell high. With the flood of foreclosures that's inundated the Atlanta market, you'd think deals would be a dime a dozen. Well, not so fast.
First, let's look at the basics:
Home equity is the difference between the outstanding mortgage balance and the fair market value of the property, and house flipping is predicated on the idea of cashing in on that number going in the right direction. But, there's always plenty of factors in play that could keep that lovely scenario from coming to fruition, especially for novice flippers.
Let's start at the very beginning: the property search.
Even with the magic of the Internet, locating that ideal flip isn't a walk in the park. Especially in a large market like Atlanta where flipping became somewhat notorious, the competition for good bets is fierce. If you're going to go the foreclosure route you're most likely going to be going against the people for whom the courthouse steps are a second home. Hiring a good broker to help with the hunt can be beneficial, for a price. Scouting neighborhoods on the ground is also an option, but that plays into another one of flipping's key components — time.
It's cliche, but oh so true in this particular field: Time is money. After you've snatched what's hopefully not a money pit, the race is on to get it sold; the ideal situation is having that done before the first mortgage payment is due. As you can imagine, that's easier said than done. HUD (the U.S. Department of Housing and Urban Development) has given flippers a break by extending the waiver on the FHA's anti-flipping rule through the end of 2014; due to this, the FHA will insure a mortgage for a home that's been owned by the seller for less than 90 days. But the biggest takeaway is that holding on to property incurs hefty holding costs. We're talking insurance, utilities, interest, taxes and mortgage payments, not to mention the coin being spent on improvements. And let's not forget the trials of actually securing a mortgage — with lending still tight, cash is king, and savings are crucial.
Given that your little money tree (fingers crossed) will likely need some tending, where should the bulk of your improvement funds be spent? Survey says: the two rooms that make all the difference are kitchens and baths. If they're not up to snuff, good luck unloading. Key takeaways for this are to not do more than the market requires (no Chastain Park finishes in an Ormewood Park bungalow), and don't allow your own personal taste to take over. You're making business decisions, so don't get emotional. In connection with our previous paragraph, never underestimate the joys of permitting; the city of Atlanta is known for making this a not-so-pleasant experience.
If you're not yet running away with your tail tucked between your legs, take heart. House flipping has made people a lot of money, but the elements have to be aligned for it to all work. Don't quit your day job; start small, and have a good team gathered, ideally through referrals, which at the very least should include accountants, brokers, contractors and a good attorney. While you're at it, don't underestimate the value of a good therapist.
— By Curbed Atlanta contributor Jonathan Carnright