Flips. You can almost spot them from the listing sheet. They tend to be among the smaller homes in an area and the listing sheet highlights the fact of new carpet, new appliances, and/or fresh paint. Sometimes a major selling point is that a buyer can "rent to own." And the houses are almost always vacant.
These are all symptomatic of an investor owned home that was bought with the idea of doing a quick fix up before reselling or "flipping" the property.
Some investors buy a house and rent it out in its original condition for a
year or two before doing a rehab, others buy with the idea of being in and out
of the property in three or four months with a substantial profit so you can't
always identify a flip from property deeds or sales history. But, if the deed
tells you the house was purchased only months earlier you know for sure.
Flips are beginning to crowd the market as home sales slow. Investors who mistimed
the market are finding that it is taking much longer than they planned
to resell their property. Some who bought with the idea of renting for a few
years to allow some natural appreciation are seeing their adjustable rate mortgages
resetting to levels incompatible with the local rental market. Many investors
who read too many books, watched too many infomercials about getting rich in
real estate or watch the numerous house
flipping TV shows went into the process with insufficient capital and are
now trying to get out with their shirts still on their back.
So why should a buyer care if it is a flip? Several reasons. First of all, from the perspective of a bargain hunter, a "motivated" seller is sometimes a fairly desperate seller. Aided by a little research a flip could be a bargain buy.
The necessary research is not complicated. A trip to the county land office, registry of deeds, or wherever real estate documents are recorded and kept in your locality will give you all the information you need.
The deed will tell you when the house was purchased, by whom, and for how much. The "by whom" can tell you a lot. Is the house owned by an individual or a company? If it is a construction company they will have a quite different expense ratio for any work they did on the property than will a non-builder. If it is one of those companies that advertise they buy houses, they may have deep pockets that will make them poor candidates for a cutthroat negotiation. With the Internet and Google you can usually find out a lot about any individual or company recorded on the deed. The deed will also provide clues about the owner's financial condition. Mechanics and tax liens will show up on record as will any foreclosure activity or bankruptcy. In the latter two instances you will have a heads up that you may not be dealing directly with the owner in any negotiation but with the bank or the courts.
Another recorded document is the mortgage. From this document you can derive the amount the buyer put down - don't be surprised to find it was zero - and the terms of the mortgage; whether it is a fixed rate or adjustable, what the rate and payment is, and, if it is an adjustable, when and by what index and margin it will adjust.
Armed with this information you will be better prepared to make an offer.
But there are reasons to beware of flips.
While it is unlikely that an innocent bystander would be dragged in, there are networks of con artists who buy and flip properties repeatedly, escalating the price each time and pulling cash from each transactions. These criminals usually disappear once they have driven the price up past any realistic number, sticking the bank with the property and the debt.
However, the expression "quick and dirty" might have been invented to describe some of the methods used in turning properties around for resale. Not to say that all or even most investor rehabs are shoddy, but it is something to bear in mind if you are interested in buying a home you suspect may be a flip.
This is the time for a really thorough home inspection. Pay extra if necessary to have the inspector crawl through the attic, basement, and crawl spaces. You want to know one important thing.
Did the seller merely put lipstick on a pig?
Have problems been repaired or just covered up? New spray paint made especially for the purpose do a good but temporary job of covering scarred and stained laminate countertops but those stains will be back within months. Wallpaper can camouflage crumbling plaster or water stains from ice dams or leaking siding.
Insist that the inspector pull the electric box to check for problems (corroded connections, aluminum wiring). Ask if he seems any evidence of water intrusion in the basement or attic or if there is any sign of insect or fire damage. If necessary call out a separate expert to check the condition and efficiency of heating and air conditioning systems.
Are the appliances new? If so are they of reasonable quality and with a factory warranty? If they are not new, are the heating elements working; the dishwasher tub relatively rust free; is the energy rating one that won't break the bank?
Carpeting and resilient floor coverings can be new and still be a piece of garbage. Cheap carpeting will not hold up and will be unpleasant to walk on barefoot or for a baby to crawl on. Inexpensive vinyl floor coverings do not always adhere properly, may tear easily, and often quickly lose shine and stain resistance.
There is nothing intrinsically wrong with a flip. Many investors do a fine job of returning distressed properties to useful life and there are many good deals out there right now. Just know what you are buying, go for a bargain if that appears appropriate, and don't be blown away by a slick job of cosmetic repair.