Time to Flip that House in Hawaii?

With real estate prices the lowest in years, and abundant inventory to choose from, more and more clients have inquired about “flipping properties.” They want to know if now is the time to buy and sell for a profit.

When the real estate market was up, flipping real estate was somewhat commonplace. I’d see the same investors buy a property, sell a property, buy a property, sell a property and so on…making a lot of quick profits. I heard mixed reactions at the time from those on the sidelines, from those that were disgusted by the amount of money being made to those that wanted to jump in and be a part of it.

Several television shows aired simplifying the flipping process, from purchase to sale, all within a 30-60 minute broadcast. Even with unexpected delays or problems, the investors always managed to come out on top, walking away with a substantial profit from a property that they might have owned for just a few short weeks, if that. And while there definitely were a lot of success stories, it was made to look easy and that anyone can do it. Unfortunately, we are well too aware that not everyone should do it.

Lets look at just two points to consider when purchasing investment property:

1. Money

• Buyers need to be pre-qualified now more than ever if seeking financing. Those days of 100% financing are memories for most. And be prepared to cover all costs of the mortgage, taxes, HOA dues, utilities, etc.
• For rental property, be prepared to cover those costs listed above, just in case renters default or you find yourself without tenants.
• Repairs should also be factored in for not only materials, but labor costs too.
• Don’t forget about capital gains tax for when you sell.

2. Time

• Selling the property for profit may take longer than what we saw in the past. This is due to several factors like supply and demand (there’s more supply now than what we saw in the last 10 years).
• Consider buying and holding. Prices have not moved in an upswing yet, so patience is key.

With the lower sales prices and interest rates, it can be expected that flipping properties will make a comeback. After all, history usually repeats itself. But just make sure to ask yourself, do you have what it takes?

Jessica L Mugrage, RA can be reached at 808.639.6182.