Sensible Shopper: Real Estate 'Flipping'

March 5, 2005 — -- The housing market has long been the playground for the rich and famous, but now the average American is getting into the real estate buying craze.

A new survey by the National Association of Realtors estimates as many as 25 percent of all home buyers never intend to actually live in their new home.

Big Profit Potential

It's called "flipping," where people buy property, wait a few months for it to go up in value and then "flip it," or sell it for an instant profit -- sometimes a huge instant profit.

Carlos Lidsky is a Florida attorney who "dabbles" in flipping real estate. In just two years, he and his wife, Betti, have dabbled their way to nearly $1 million in real estate profits.

"There's no question that this has the potential to make large gains," said Lidsky of his real estate ventures. "This is a very good way to supplement [income], and even at some point, if it works well for someone, could even be a full-time job."

Risks Are Real

But as more Donald Trump wannabes shift their assets from a frustrating stock market to a soaring real estate market, some experts caution that flipping property for a profit isn't quite as easy as it looks.

Realtor Todd Nordstrom says that "flipping" is becoming so popular that people have to be extra careful. With so many properties on the market, prices will be driven down, he said.

But with some careful planning and research, there is still money to be made, he said. "What you try to do is find out about the property before the general public does," said Nordstrom.

Tips to Start Flipping

Cynthia Crowley, a Manhattan realtor, offered some tips on how to flip real estate the right way and pitfalls to watch out for.

Educate yourself. Know the neighborhood you want to buy into. Tour the area with a realtor, and find out what comparable homes are worth, what types of homes are selling well, what property taxes are in the area and so on.

Create a business plan. Just because so many people are exploring real estate flipping doesn't mean you can jump in unprepared. What are your goals? How quickly do you want to turn around the property? Does the house need some work to make it more valuable? How much profit do you realistically hope to make?

Put together a business team. Consult the experts. The people on your team should include a home inspector, contractor, realtor, tax accountant and attorney to advise you.

Prepare for the worst. Be prepared to deal with problems. What if the house needs a new foundation or interest rates suddenly shoot up? What if the house doesn't sell or goes into foreclosure? If you can't handle the financial risks, don't do it.

Think long term. Traditionally, real estate performs very well. Crowley says in the worst-case scenario, you can live in the home or rent it out. It may not be profitable in the short term, but she says real estate is almost always a good investment in the long run.