House flipping has become very popular in recent years. Networks like HGTV and TLC dedicate entire shows to the concept. If you’re a house flipper you’re likely already aware of what is and isn’t appealing to potential buyers; but if you’re looking to buy a flipped house you may not be nearly as well versed in the secrets of the flip trade. Knowing some of those secrets and what to look for can be a life-saver, and I’d like to take a moment to review some of the things we typically encounter when inspecting flipped houses. While this article will focus on some of the downsides to flipped homes, we will also review several of the benefits of buying a flipped house… assuming the flip is done well!
So first of all, what exactly is a “flipped” house? The term “flip” is obviously slang but refers to a home that is renovated – usually quickly – in an effort to transform the home into a much more appealing one. When we hear “flip” we think of something being turned upside-down quickly, and that’s the gist of the term when it comes to real estate. Flipped houses are usually bought at a low price, updated, and then sold for a fairly large profit. How large of a profit depends on the amount of cost in materials and labor to update the home and the time it takes to make those updates, but flippers obviously attempt to make as much money as possible with the least amount of work and expense on their own part. And obviously, it benefits the flipper to sell as quickly as possible.
The need on the flipper’s part to sell quickly and with the best profit margin they can leads to some inevitable realities, although not all of these are bad for the buyer. For one, flippers tend to use inexpensive materials that look nice but are often not very durable, rather than pricier materials that also look nice but are made to last longer. For example, a flipper may use faux tile panels in a bathroom instead of real tile or thin stock carpet instead of thicker, more durable carpet. A typical flip house will have a fresh coat of paint on the walls, but the paint will usually be of lesser quality than more expensive name brands, making it less durable and sometimes harder to clean. Yet, while these materials are less expensive they are often perfectly functional and are in some cases almost identical in appearance to their much more expensive, but authentic, alternatives. A flipped house we recently inspected had faux tile panels, and I had to look very closely to realize they weren’t real tiles with grout. The only clear indication was that the grout lines were too perfect to be natural. In truth, faux materials have come a very long way in recent years and offer a more affordable, but still nice, alternative to the “real” thing.
But how, exactly, do house flippers determine what to update and what to leave alone? To answer this question, you need look no further than typical real estate trends. As a general rule, kitchens and bathrooms sell houses. Aside from location, which has always been the single most important factor in real estate, agents usually advise sellers to update their kitchen and bathrooms before focusing on other areas… and for good reason. It’s a well established fact that buyers care more about kitchens and bathrooms than most other rooms in a home. These rooms often feature decorative finishes and are harder to alter than common rooms because of fixtures and plumbing, so they are naturally appealing to buyers when they are already up-to-date.
For these reasons, it’s very wise on the part of the flipper to focus on these areas. Unfortunately, though, this often comes at a cost to other areas of the home that tend to be neglected as they take a backseat to the main living space. In particular, the exterior and basement are often repaired very little, if at all. In fact, probably three-quarters or more of the flipped houses we inspect look very nice on the main floors (and often at the front of the home where curb appeal is important), but the basement and the rest of the exterior are usually a whole other story. A flipped house we recently inspected was immaculate on the first and second floors: new laminate floors, new cabinetry, new ceiling fans, new carpet, fresh paint, etc. To add to its charm, the house was even staged with rented furniture, including a platter on the modern dining room table with a bottle of wine and fake grapes. Setting foot inside the front door, anyone would undoubtedly fall in love with the look of the house and feel as though they could move in immediately and fall in love with their new home.
Unfortunately, the same home had major structural problems, water intrusion in the basement, damaged siding in several areas, and a few major safety hazards. Despite its very nice appearance in the main living areas, the house possessed several serious problems that could saddle the buyer with substantial repair costs or even threats of severe injury. Not surprisingly, the prospective buyers of this home didn’t pay much attention to the basement or exterior since the laundry had been relocated to the main floor and they knew they would be living inside the home and not paying much mind to what’s outside. Needless to say, they were very glad they decided to have the home professionally inspected. They did end up buying the house, but they were able to use our report to address several of the more immediate defects that needed corrected.
It shouldn’t be surprising that many flipped houses follow this same pattern, but some are far superior to others. We come across many flipped houses where the seller has updated all of the older plumbing with newer PEX, updated the wiring and electrical panel, installed a drainage system to combat moisture intrusion, and so forth. In most cases, these homes have also had some basic updates done to the interior, so they still possess some of the charm buyers look for. The living space may not be as enticing, but the house is actually in much better condition.
Flipped houses are often a great investment for those doing the flipping, but they can be either a wise decision or a nightmare in disguise for buyers. The key to determining which is true is to simply look beyond the main living areas when you tour the home. Don’t get so caught up in the fresh paint and updated kitchen that you fail to consider structural problems that may exist at the foundation. Don’t become so engrossed in the beautiful new floors and remodeled master bathroom that you forget about the missing shingles on the roof or the heavily corroded plumbing supply lines. It’s very cheap to add fresh paint to some walls, but it’s very expensive to make repairs to correct the home’s structural integrity.
If you’re considering buying a flipped house, know that you may be getting a great home for a great price, but be sure to look beyond the mere cosmetic appeal. Consider the home’s major systems and components to ensure that it is, first and foremost, safe and durable. And of course, there’s no substitute for an experienced, certified inspector when it comes to this crucial task! On the other hand, if you’re planning to flip a house for profit, consider making some truly worthwhile updates to the home’s major systems and components to provide the future buyer with a structurally sound and safe new home. When both parties act responsibly, a flipped house can be a true win-win!
*To visit our main website, go to http://www.hillinspections.com