I grew up listening to my parents’ stories of flipped homes and foreclosures that made them a (relatively) quick buck throughout the early ‘90s. Many of us, I think, heard them talk of house-flipping as a surefire way of making money without risking the stock market. Oh, the pre-crash glory days!
There is still an element of evergreen truth to foreclosure investments being a means to a financially beneficial end. But when I hear people discuss foreclosure investments, I am overwhelmed with the desire to quote the late, great Inigo Montoya and say, “I do not think it means what you think it means.” “Investments” are just that—a serious commitment of time, resources and capital. Before diving into one, here are some things you should know.
Flipping a House Doesn’t Guarantee You’ll Get Rich… or Even Make Money
At least, not immediately. Historically, buying foreclosures has been a savvy way for investors to purchase properties either at or below market value. While this end of the deal is generally good, resale isn’t always as promising. These things take time and the resale value will ultimately depend on a variety of factors that are ultimately out of your control. Sometimes you might have to settle for breaking even, though buying a foreclosure, especially at auction, lowers your purchase price enough that your odds of making a buck increase.
It Takes Capital to Make Capital
One of the best ways to proactively increase your home’s resale value is to remodel. Even the slightest changes to the property can make a huge difference. From cleaning up the exterior, to replacing doors and fixtures, to laying down sod, there are endless opportunities for homeowners to impress prospective buyers. Of course, it should go without saying that you must be willing to invest time and money into these improvements…as well as a lot of elbow grease.
Maintaining a Property is Hard; Remodeling is Harder
I grew up in a home that was a constant source of Saturday “family projects.” It wasn’t uncommon for me to wake up on a weekend and be set to the task of prying up linoleum, helping my father replace a section of drywall or some other remodeling chore. I learned firsthand that remodeling is hard; it takes a lot of sweat, a whole lot of patience and in my family’s case—cooperation. While ads in Home Depot encourage homeowners to do it themselves, nobody ever tells you how much effort home improvement projects actually take or how quickly they can go awry. It is a rare skill to properly evaluate the time and money it will cost to remodel a room or two. But don’t let your uncertainty or inexperience scare you into giving up before getting started. Tackle the projects anyway.
Oh, the Woes of a Landlord
If you’ve ever talked to a landlord, you’ll hear horror stories about late-night pipe bursting, college kids forgetting to empty the dryer’s lint trap (for a consecutive year), damage done by pets, etc. One of the reasons people invest in foreclosures is to own a second property that they can fix up, rent out and generate an income stream for years to come. This might even apply to you! Before you rent your property out, however, read up on the process and find out as much as you can about what your new job as Landlord will entail before you commit. Like any major life decision, buying a foreclosure—whether to live in, flip or rent out—shouldn’t be entered into lightly. Do your homework, stick to the budget and appraise the amount of work to be done, but don’t worry too much. I’ve never regretted any of my family’s home undertakings and now, as an adult, I don’t have to call a handyman to change a light bulb.
About the author: Joe Givens is a real estate professional turned blogger who writes about foreclosures for money, but fishes for food.