What To Know Before Buying a Flipped House
If you’re interested in buying a flipped home, there are a few things to consider before diving in. Knowing what to look for in a flipped house can mean the difference between buying a real-estate regret and buying a home with instant equity. This article will discuss what to look for in a flip house and what to avoid.
What Is a Flipped House?
A flipped house is a property that has been renovated, remodeled or updated by an investor and then sold at a higher price than the original purchase price. The property is usually purchased with the intent of being a flip, so investors often look for homes that require minimal work and expense for maximum return. That usually means older homes and fixer-uppers are taken and improved by a real estate investor.
Typically, house flipping involves painting the walls and replacing countertops, the HVAC system, drywall, water heater and more. While it’s great to have these expenses and headaches out of the way, house flippers often avoid listing with a realtor, prefer quick deals without lender requirements and make other efforts to improve their profit margin.
If you’re in the market for a modernized house that requires little to no repairs and is still a good deal, a flip house may be an excellent solution. You just need to be on the lookout for a few things.
How To Spot a Flipped House
They’re not always easy to spot, but there are some tell-tale signs that a house is a flip.
- Newer than the neighbors: Seeing a home that’s in noticeably newer condition than the surrounding houses is one clue that it may have been flipped. They tend to have a lot of curb appeal, and some may even appear to be new construction.
- Flipped quickly: Another sign is if the house was listed for sale quickly after being purchased. Flipped homes usually go on the market within a few months of purchase, while regularly bought homes tend to spend more time between being listed. If the house isn’t listed on the market, and is instead a private sale, you can look up property records from your county assessor’s office.
- For sale by owner: Flipped houses are often sold by the owner, with ads on sites like Craigslist and Facebook Marketplace. Listing on these platforms helps the seller avoid a real estate agent’s commission, which is a reasonable way to increase their profits. It’s also another sign that the home may be a flip.
What To Look Out for in a Flipped House
While flipped houses aren’t inherently bad, buying one does require a different perspective and close attention to detail. The key to a successful flip purchase is to look for poor handiwork, hire a licensed inspector, verify permits and review the Seller’s Disclosure.
The biggest concern with buying a flip is that you don’t know what the previous owners have done in terms of repairs, upgrades and renovations. House flippers are time motivated, so it’s important to make sure they didn’t rush the job or cover anything up. It’s essential to get a complete home inspection before purchasing a flip. This will give you an indication of any updates or work that need to be done on the property.
Before getting to the point of an inspection, pull back the curtain and take a look for these signs of a hasty flip:
Look for poor handiwork
Things like paint drips, patchy wallpaper and uneven trim work are all signs that the prior owners cut corners. When this is true for cosmetic updates, there’s a good chance it happened in more serious areas as well. Imagine buying a home only to realize the seller covered up a rotting structural beam by putting decorative molding over it. Failing to identify issues like this now can cost you in the long term.
Work with a licensed inspector
You can hire a licensed home inspector to come to the property and take a close, intentional look at the key systems and structures of a home. Since they inspect the attic, cellar and all the nooks and crannies, an inspector may identify problem areas or potential issues the average person may overlook.
Examples of what an inspector might uncover include:
- Plumbing damage
- Faulty electrical systems
- Foundation problems
- Structural damage
- Signs of moisture and mold
A licensed inspector may also point out existing regulatory or code issues that need to be addressed before you can purchase the home.
It’s important to conduct the inspection before making a purchase agreement. Having their insight before closing gives you the chance to ask the seller to correct the problem or adjust the price of the home.
Verify permits and contractors
Not all home improvement projects require permits, but if your home had upgrades done without permits, you’re on the hook for getting the home up to code. Having the proper permits and licenses for a project can be expensive and time consuming, so it’s common for flippers to skip this step.
Try to get receipts or proof of proper contractor licensing. Many states require contractors to be certified in the type of work they do, and you’ll want to verify that the prior owners hired legitimate professionals. It may not be easy for potential home buyers to check up on this, but it’s worth the effort.
Review the Seller’s Disclosure
When selling a home, the seller must offer a written Seller’s Disclosure outlining any known issues or problems with the property. This helps you identify issues the seller knows about but couldn’t repair.
Not only does it show what they couldn’t fix, it also tells what happened to the home in the past. For instance, if the previous seller notified the investor of mold issues, they’re required to disclose it when they go to sell the house – even if they’ve remedied the problem. If you identify anything concerning on a Seller’s Disclosure, you have the right to raise questions to the seller. In fact, you can also ask for reasonable requests, like paying for the mold to be addressed or other similar solutions.
A Seller’s Disclosure can be requested, and should be provided, prior to the purchase agreement being executed. Receiving it before your offer is accepted gives you a chance to back out or ask questions.
Pros and Cons of Buying a Flipped House
Buying a flipped home certainly has its appeal, especially since the seller often does a lot of the updates for you. However, it’s important to know the risks before signing that contract. Weighing the pros and cons of buying a flipped house helps you make an informed decision and potentially avoid any unforeseen headaches.
✅Modernized look and appliances
A quality flipped home will have a modernized look, with updated appliances and features. This can include new flooring, paint, trim, cabinets and more. When done properly, these updates can significantly increase the value of the home.
✅Can be cheaper than a new house
Flipped homes can be cheaper than buying a brand-new home with similar features. Serious house flippers buy building supplies and materials in bulk, making what’s out of reach for most homeowners more accessible.
Since flipped houses are rarely occupied, contingency clauses are rare, meaning the home buyer’s possession is a breeze.
⛔Potential for code violations
The seller’s failure to obtain the proper permits for home improvements can leave you on the hook for costly and frustrating code violations.
⛔Upgrades can hide larger issues
If a home has all the upgrades or the price seems too good to be true, the upgrades may be hiding major underlying problems, like structural damage or mold.
⛔Renovation may have been rushed
House flippers make more money when they sell the house fast. Since they’re incentivized to sell the home as soon as possible, it’s common for renovations to be rushed.
Make Sure Your Flip Isn’t a Flop
Buying a flipped house can secure you a clean, modern home at a good price, but extra due diligence is crucial.
Most importantly, remember to get an inspection from a licensed inspector before finalizing the purchase. Most real estate investors are time motivated, so if you need to make requests following a home inspection, they’re more likely to bend on price than additional fixes. Just make sure they’re written into the purchase agreement and addressed before closing.
If you’re interested in a flip, proceed with caution. But with the right knowledge and some legwork, you can navigate the risks of buying a flipped house and end up with a great deal.