7 Things Not to Do When Flipping Houses

Nov. 18, 2013— -- intro: Mold, wood rot, warped floors, a dated bathroom -- these problems might seem a nightmare to the average home buyer, but to a seasoned flipper, a house full of flaws could mean profits.

With the housing market improving after the 2008 crash, house flippers -- and reality TV shows about house flippers -- are back. From "Flipping San Diego" to "Flipping Boston," the nationwide trend of buying a house at less than market value, spending some money to fix it up and reselling it at a higher price is once again a lucrative way to turn a profit.

Seasoned house-flippers Kim Williams and Maria Powell spent time with "Nightline" in and out of various fixer-uppers in a Charlotte, N.C., neighborhood -- flips in North Carolina have increased by 14 percent in the past year, with flippers averaging a profit of $50,000 per property.

The duo talked about a few of the do's and don'ts of flipping they have learned over the years.

quicklist: title: Don't Go Over Budget When Buying the Hometext: Both Williams and Powell say it's important to stay within your budget and purchase "at the right price" from the start. Additional costs can come later in upgrades to the house or contractor costs. So don't get attached to a house when you walk in.

"It's not emotional," Powell said.

quicklist: title: Don't Ignore the Upgrades You Really Should Maketext: Some properties need only the bare minimum, Powell said, such as putting a fresh coat of paint on the walls or adding carpets. But if the bathroom needs new plumbing or if the kitchen needs new appliances, Powell said flippers would get more on their returns if they spent the money to make those necessary upgrades.

"I think sometimes people don't see the things they could do to bring the money back," she said. "If you do the minimum, there are some properties you should do that [for], but if the neighborhood will carry a higher price point, then you want the best use of the property."

quicklist: title: Don't Buy a Home Without Getting It Inspected Firsttext: A few cracks in the foundation or a leaky window could be easy fixes or major problems, so both Powell and Williams said getting an inspection before purchasing a home, even if you have already put in an offer, is very important before going to closing.

"Walk around the exterior of a home and it has several cracks in the foundation running up the side of the house ... those would be huge red flags for us," Powell said. "It's important to get it inspected because it could be a minor issue, or it could be a major issue. It could be a few hundred dollars. It could be a few thousand dollars."

"Inspect it and tell me how much it's going to cost," Williams added.

quicklist: title: Don't Skip on Researching the Neighborhoodtext: Doing lots of research on the neighborhood is vital in choosing a house to flip, Powell and Williams stressed.

"Sometimes you go in a neighborhood, and there are several houses, a lot of competition, the house has been on the market a long time, there's not a whole lot more you can do to it to bring it up to good marketability, then you pass," Powell said.

Take note if the house is close to a retail center or is in a walkable, friendly neighborhood because these can be major selling points for attracting buyers.

"It has to be an area that's up and coming, and it has to be an area that sells quickly," Williams said.

quicklist: title: Don't Pay Contractors in Full Until the Job Is Donetext: One mistake Williams said they made when they started flipping homes in Charlotte was they paid a contractor in full up-front to install wood flooring and do some other woodworking for them, but the contractor disappeared before the job was finished.

"[He] never showed back up," Williams said.

"Don't make that mistake," Powell added.

quicklist: title: Don't Get the Wrong Permitstext: Different states require different licenses and permits for flipping homes. Some states require house-flipping businesses to be licensed as general contractors or, if the home is being sold through a subsidiary, require a real estate selling license.

Powell and Williams said not only make sure you have all the permits you need for the job, but also apply for the correct permits and double check to see that the local authority providing the permits gives you the correct ones.

quicklist: title: Don't Be Afraid to Renttext: After you have flipped a home and put it up for sale, Powell said it is a good idea to have a backup plan, especially in today's housing market.

"A good plan in today's market with everything being iffy is 'it would be a great rental property,'" she said. "That's a good investment. That's good for anyone to have in their portfolio. I would say if I buy something and I'm not sure if it's going to sell or not, I can put someone in it, and it will have a great return for rental."