4 Big Things to Consider Before You Buy a Flipped House

published Aug 8, 2018
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(Image credit: Apartment Therapy)

Like it or not, house flipping is back: Americans flipped more than 200,000 homes in 2017, the most since 2006. But while there’s an understandable appeal to buying a freshly renovated, move-in ready home, there are some things to think about before you buy a flipped house.

You’re Probably Paying a Premium

House flippers do it to make money—enough to make it worth the considerable risk, effort, and upfront investment. The average profit on a flipped house was $66,448 in the third quarter of 2017. So when you buy a freshly flipped home, there’s a good chance you’re paying, say, $100,000 for a $40,000 kitchen and a $20,000 bathroom.

That upcharge is basically a convenience fee: It means you don’t have to shop for cabinets or hire your own contractor and designer, and that could be money well spent. Managing a kitchen or whole-house remodel is stressful and time consuming, and if you can’t live on site during the construction, you may need to keep renting or carry two mortgages for a few months.

So, just because something has a high markup doesn’t necessarily mean it’s the wrong choice. The profit margin on a cup of coffee or glass of wine is outrageous at restaurants, for example, but it’s one most of us are more than willing to pay. Just be sure the convenience of a flipped home is worth the extra cost to you, and that you’re not putting yourself in a precarious financial position to afford it.

Haste Makes Waste

On top of their construction budget, a house flipper has to pay home insurance, property taxes, utilities, and other carrying costs during the renovation process. So every month they hold onto a property eats further into their profits. There’s some incentive to rush things, which can be problematic if it means the flipper cuts corners on safety or quality,

No matter how efficient a developer is, careful remodels do take time. If you’re looking at a flipped property (an easy way to tell is by checking the date and price of the last sale), you should at the very least contact the local building department to be sure the developer pulled the proper permits and the work passed inspection.

Cosmetics Can Hide the Real Problems

Personally, I think one of the great dangers in buying a flipped house is that developers—like a lot of their buyers—focus mainly on cosmetics. Fresh paint and new finishes can blind buyers to bigger problems. But while a flipper can make a tired old house look beautiful and brand new, unless the developer can give you a list of upgrades, there’s no guarantee that it’ll function like new behind the walls.

Ideally, a renovator will upgrade important stuff like the plumbing, heating, and electrical systems if needed. But replacing a roof, furnace, or drain line lacks the open house wow power of a gleaming new kitchen with bright quartz counters and a sparkling tile backsplash, so those eye-popping finishes are where many remodelers focus their budgets.

This isn’t just true of house flippers; many sellers do some superficial sprucing up before listing a property, because it works. Marie Presti, a realtor in Newton, Mass., told me that “making the place look pretty” can have a bigger impact on the sales price, dollar for dollar, than replacing equipment like a boiler. “There have been homeowners where they spend all their extra money on the structural aspect of the house when they go to sell, and that can’t be the only thing that you look at,” Presti said. “Sometimes cosmetics give you more money back when you go to sell.”

But a brand-new interior can lend a false sense of security if the home’s core systems haven’t been touched. And if there is a problem behind those freshly painted walls and custom cabinets—a rusty pipe fitting, some old wiring—it might end up ruining your brand new kitchen before all’s said and done.

It Wasn’t Designed for You

A smart home flipper will make upgrades on the safe end of popular trends, trying to appeal to as many HGTV-viewing potential buyers as possible. You can usually expect some combination of stone counters, stainless appliances, and an open layout.

But that one-size-fits-all approach strips you of the chance to customize key rooms for you and your family, from layout to flooring materials to paint color.

And Yet…

All that said, buying a flipped house can spare you a lot of stress, hassle, and difficult decisions. The DIY equivalent—buying an old fixer upper and soliciting increasingly booked-up contractors and designers to remodel it inside and out (or chipping away at it yourself over time)—is a huge undertaking to tack on to the already taxing home buying experience.

It’s also an expensive endeavor to leap into directly after purchasing a home, when you may have tapped every drop of savings to scrape up a down payment. And that brings us to one final advantage to buying a flip: While you’re paying a steep premium for what you can only hope is a quality renovation, at least those remodeling costs will be wrapped into your 30-year mortgage, making them a little affordable.