Flipping Without Flopping



With the recovery of the Kansas City real estate market, there also appears to be a resurgence of home “flipping,” a special category of the housing business that is seen as villainous by some and virtuous by others.
Flipping literally is the practical application of the primary rule of capitalism: buy low and sell high. Buy an older home that is outdated or deteriorating, spend money to fix it up, and then sell it for as much as possible.
Some people believe that means taking advantage of widows and orphans — for a profit. Others see it as risk-taking to upgrade substandard homes and return them to market — for a profit.
“You can make quite a bit of money if you do it correctly,” concedes veteran flipper Christian Zarif. “But if you don’t know what you’re doing, you can lose everything.”
Echoes flipper Eric Colfax, “It is very easy to get hurt, but you have the potential to make good money. When you walk into a house, you need to have an idea what it’s worth, how much it will cost to bring it up to standard, and how much you can sell it for. But you always have to build in a margin for the ‘unexpected’ — and you will always have the ‘unexpected.’”

Before
101 Morningside Dr., Kansas City, MO

After
101 Morningside Dr., Kansas City, MO

A LITTLE PERSPECTIVE

Before
4823 W. 96th Terrace, Overland Park, KS

After
4823 W. 96th Terrace, Overland Park, KS

According to the data mining company RealtyTrac, nationwide last year only about 156,862 single-family homes were flipped; in other words, purchased, renovated and resold within six months. In the Kansas City metropolitan area, it calculates only 212 home sales fit that description, less than 1 percent of all homes sold in the area.

And margins were extremely thin. RealtyTrac data shows the average home was purchased for $157,400 and resold for just $161,400 — a profit of $5,200. (But RealtyTrac acknowledges its numbers may be off because sales prices in Kansas are not required to be disclosed on sales deeds.)

By comparison, the flipping capital of America is the New York City-Long Island-Northern New Jersey area where more than 10,000 homes were flipped last year at an average profit of more than $100,000.

TURN EM' AND BURN 'EM

Ideas vary on what makes a good flippable property, and Zarif and Colfax each have their own ideas.

FOR ZARIF:

  • A home built in the ‘70s or ‘80s.
  • A home priced between $80,000 and $120,000 that can be sold for close to $150,000.
  • A home on the Kansas side, between I-35 and I-435 — the further north the better.
  • An under-value home in a good neighborhood that will support the eventual asking price.

FOR COLFAX:

  • A home in the urban core, Missouri side but close to the state line.
  • A good neighborhood that will support the eventual asking price.
  • Use a real estate agent to find and help buy the home, but sell it yourself to avoid the commission.
  • Try to sell to someone who will occupy the home and keep the price reasonable to the neighborhood. “Don’t try to gouge the buyer.”
  • Try to get it back on the market within six months.

Both Zarif and Colfax agree that good candidates for flipping are homes that have “good bones” — the foundation is sound, the plumbing is good, the electrical system works and the roof doesn’t leak.

If there are structural flaws, they say, the flipper could be looking at untold thousands of dollars in renovations that could destroy the profit margin. Homes that only need cosmetic work (painting, updated fixtures) can be turned quicker.

Also important: Do the work yourself. Repairs that require a contractor mean money out of your pocket. In some cases, it can’t be avoided, but whenever possible, do the renovation yourself.

Finally, although everyone has to start somewhere, home flipping is not an amateur sport. A background in housing or construction is important. (Zarif is a veteran real estate agent. Colfax worked his way through college as a painter on new home construction sites.)

Another pitfall for novices: The Home and Garden channel on television.

“Don’t watch HGTV,” says Zarif. “They make it look easy to remodel a room in an hour. You think you can do it. You can’t. Turn off the TV.”

 

101 Morningside Drive

Before - Exterior

After - Exterior

Before - Living Room

After - Living Room

After

After

4823 W. 96th Terrace

Before - Exterior

After - Exterior

After - Kitchen

After - Kitchen Chandelier

After - Living Room

After - Staircase

photos: Brian Courtney