If you’ve ever watched HGTV, you know all about house flipping and how dazzling the finished product can be. And if you’re a homebuyer browsing real estate listings, you may come across some of them. These properties may appear to be brand new — shiny kitchen, sparkling bathrooms, fancy finishes that make it look like no one has ever lived there before. However, what looks like pristine new construction on the surface may be a flip, and it pays to look deeper before you commit to it. Read on to learn more about how house flipping works, and what you should look out for as a buyer.
What is house flipping?
Flipping houses is a common real estate investment strategy that involves buying a property as cheaply as possible, renovating it and then reselling it for a profit. Investors flipped around 309,000 single-family homes and condos in the U.S. in 2023, according to a report from real estate data firm ATTOM.
Companies that buy houses for cash and iBuyers are typically some of the biggest flippers. They move quickly so that they can turn each home around as fast as possible to limit their carrying costs. Cash in your pocket quickly is certainly appealing for those who sell properties to these companies, but what about those who buy them?
Well, the good news is you don’t have to deal with the headache of finding a contractor to do all the work that’s needed — the work is already done. The bad news is, it’s up to you to make sure it was done well.
“Real estate investors often cut corners on essential but less visible repairs, such as electrical wiring, plumbing and structural issues,” says Jeremy Henley, founder of TheQwikFix, a California-based company that analyzes home inspection reports to develop repair estimates. “Buyers should pay special attention to these areas, ensuring that quick cosmetic fixes haven’t masked underlying problems.”
Is buying a flipped house risky?
Not necessarily, but it can be.
While buying any property comes with some risks, flipped properties can be a bigger gamble due to the “buy low, sell high” business model. Unlike a home where the owner has been regularly maintaining it, a flipped home was likely in a state of some disrepair.
“The flippers’ goal is to make the most from the sale with the least investment,” says Sallie Ellison-LaRocco, a home inspector with WIN Home Inspection in Indiana. “So often, the high-dollar repairs are neglected or hidden, especially things like the roof and HVAC systems.”
Henley recently saw a home that had “a major foundational crack that was previously visible on the front of the home from the street, even in Google Street View,” he says. “The flipper covered the front of the home with modern wood paneling, including the area with a significant structural issue. Had the home inspector not thoroughly inspected the foundation in the crawlspace, this would have been missed.”
Erin Hybart, a Louisiana-based real estate agent and house flipper, remembers one recent property that “looked stunning on the outside” but had loads of beneath-the-surface issues. “Some of the electrical wiring was duct-taped inside the wall instead of being properly repaired,” she says. “The flipper used subpar materials, leading to a major roof leak months after the sale. The new owners had to gut the house to fix what was hidden.”
“In a different house, I saw a wall oven added to the kitchen, and the area around it was bricked up to have a column appearance,” Hybart says. “A renovation revealed that the wall oven was powered by an extension cord spliced into a wire in the bricked area. It was a fire waiting to happen.”
Red flags to watch for
Many house-flipping companies take great pride in their work, of course, and make sure that their homes are in excellent shape before they’re listed for sale. Still, as a homebuyer, it’s critical to understand the warning signs. Red flags that you — and your home inspector — should be on the lookout for include the following:
- Lack of documentation: Hybart recommends asking for a thorough paper trail of the project. “Ask for receipts and invoices for the repairs completed on the property,” she says. “If the flipper can’t produce the receipts, I would walk away.”
- No permits: Ask to see the permits for all the work done to verify that the flipper met local building codes and followed regulations. If there aren’t any permits, be skeptical — that could be a major problem.
- Sparse property disclosures: Most states require home sellers to provide the buyer with a disclosure statement that details previous repairs, damage, safety issues and more. A lack of information on a property disclosure might simply mean that there aren’t many issues, but empty disclosures might also be a sign that a seller/investor isn’t trying very hard.
- No mold testing: A mention of mold on the disclosure is something to look for specifically, says Josh Rudin, owner of Arizona-based ASAP Restoration: “If mold isn’t listed on the material facts of the property disclosure, then it hasn’t been tested,” he says. “If it hasn’t been tested, there is no way to prove that the black patch next to the washing machine is truly mold. If there’s no proof, then it might just be dirty, and then it can be painted over and forgotten about.”
- Differing roof tiles: Are the shingles on the roof all uniform? If it looks like just a few shingles have been replaced, that could be a sign of a patch job — which could mean that you’ll have to replace the whole thing sooner rather than later.
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Door-closing issues: Ellison-LaRocco recommends examining how well doors close, particularly in historic properties. “One trick to grab your attention about possible foundation concerns is determining if the interior doors, especially on the second floor, close correctly,” she says.
Tips for buying a flipped home
If you find a flipped property you love, don’t despair — just use a bit of extra caution. Your real estate agent will be an invaluable resource, especially with researching the home’s history and working to find out more about the work that was performed. Ask questions and make sure you feel comfortable with the situation.
And, while a home inspection is important with any home purchase, it’s even more crucial when the house has recently had a big facelift. Just as you compared plenty of options to find the right home, Rudin recommends taking a similar approach in selecting a home inspector: “Shop around when trying to find an inspector,” he says. “Ask to see a sample report of a previous property that they did, and then compare the reports for how thorough and in-depth they are.”
Make room in your calendar to attend the inspection, too. “We love it when clients join us, so they get to see the findings firsthand, like a leaking dishwasher connection or improperly vented bathroom fan,” says Ellison-LaRocco.
Even if you do spot some potential red flags, it doesn’t necessarily mean you have to walk away. You may be able to leverage those issues to get a better deal. Remember that the investors are working to turn a profit as quickly as possible. They may be willing to lower the price or offer some concessions to ensure that you don’t walk away from the sale. If you can address the issues on your own and get a great deal, you may find yourself wanting to do an actual flip in celebration.
FAQs
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Buying a flipped house can be a good decision, but be sure to have a thorough home inspection that looks at every inch of the property to make sure no major corners were cut. Look beyond the cosmetic enhancements and stylish finishes to make sure that the most fundamental aspects of the home — like the plumbing, electrical system, roof and foundation, for example — are in good shape.
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It really depends on the company. For the most part, yes: Most firms who specialize in flipping houses are legitimate real estate investors. But as in any industry, some companies may be inexperienced, or worse. Do your research: Look for online reviews, check ratings or past complaints with the Better Business Bureau and try to establish a sense of how long the company that flipped the home has been in business to see who’s behind your potential purchase. Your real estate agent can help look into the property’s history.
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