Buying to Flip? How Not to FlopForeclosure rates are further shrinking, good news for delinquent homeowners but making it harder for opportunistic buyers to get a good deal.
Foreclosure activity in Colorado is at the lowest level since the housing bubble burst in August 2006, according to RealtyTrac, a foreclosure sales and analytics company.
In the first half of 2014, foreclosure filings in Colorado dropped nearly 43 percent compared to the same period a year ago. In June alone, there were 564 foreclosure filings, a 57-percent decline compared to last year.
The decrease of properties in foreclosure makes it more difficult for real estate investors to find a great deal on a home they wish to flip. But flipping still can be a profitable venture.
"Buying a foreclosure property requires discipline and focus, even more so with the inventory of foreclosed homes narrowing," says Kerry Brill, president and CEO of Merit Co. Real Estate. "There are smart deals to be had, but the buyer must be fully prepared to move quickly for the right opportunity."
While flipping was down in the first quarter of 2014 compared to a year ago, real estate investors nationally made a larger average profit per flip: $55,574, a 30 percent return on the initial purchase price, according to RealtyTrac.
"For a careful buyer, a foreclosure can be a good investment," says Brill.
Here's how to reduce the risk and up your chances for success when buying an investment home to flip:
1. Have Patience
The mortgages on most foreclosed properties are held by banks or financial institutions. "They move at their own pace," says Brill. "You may wait weeks to hear back after an making an offer on a foreclosed property."
2. Stick to Your Budget
The goal on a home flip is to make money. The closer you stay to your intended budget both for purchasing and improving the property, the more you'll profit when it comes time to sell.
3. Size Up the Neighborhood
Does the home fall in a desirable neighborhood with good schools and top amenities? Are other homes in the neighborhood commanding top dollar on the market? Make sure you're investing your dollars in the right area.
4. Get a New Inspection
You want to get a handle on the current condition of the home and its systems. A home inspection will give you a detailed list of the home's current state and give you an expert opinion on what may need improvement or replacement before you put it back on the market.
5. Work with a Professional
A real estate professional will be your advocate and help you navigate the entire process, from finding the right homes in the right neighborhoods to negotiating your purchase with the seller - which could be a lending institution - to selling your home when you're set to flip.