House flipping is an investment strategy in which an investor purchases a house for a low price and then resells at a high price. There are several methods to house flipping. While house flipping has become a popular and profitable trend in the real estate market, the risk can also outweigh the benefit as the market stabilizes.

Renovations

A method of house flipping made popular by reality television shows such as "Flipping Out" and "Flip That House" is when an investor buys a house that is in need of renovations. The investor uses his own money on the "fixer-upper" and then resells it for a profit after renovations are made.

Foreclosures

Another common type of house flipping is when an investor purchases a home in foreclosure and then immediately resells it without making any changes to the property. Homes in foreclosure are sold below market value, but the investor resells the house at market value to make a profit.

Advantages

House flipping can allow an investor to make large amounts of money in a small amount of time. It can also be done alongside a full-time job as a hobby. House flipping via renovations can create a number of jobs for contractors and construction workers and improve neighborhood property value.

Risk

As the market bottoms out, real estate investment is dwindling in popularity. While interest rates are low and foreclosure rates are high, there is still potential for significant profit to be made. However, because houses are taking longer to sell now than in the past, mortgage and property taxes can swallow total profit.

Considerations

When considering house flipping, an investor must take into consideration all the property taxes and fees involved. These include capital gains tax, property transfer taxes, pre-sales taxes and any additional legal fees a lender may charge.

Source:

Flip A House

Best House Flip: Financial Considerations of Flipping Property

"The Toledo Blade": Foreclosures Open Doors for Area investors; Gary T. Pakulski; March 2007

Resource:

The Flipping Pad