Why Everyone Wants to Be a Flipper in Chicago
It seems like everyone wants to be a flipper these days and I am not referring to the lovable dolphin. Flipper and flipping are trendy terms for buying distressed property, fixing it up, and reselling the property within a year for a profit. Television glamorizes flipping houses and television producers purposely make it look like a very easy process. HGTV, A&E, and several other networks have entire television shows that revolve around flipping.
This is the first time since 2007 that flipping by private individuals has surpassed the volume that the banks are doing. The banks have been clearing foreclosures on their books and now the bank only represents 26.2% of all flips according to Redfin. Redfin is also reporting a big trend in Chicago for two unit and three unit properties being de-converted into single family homes. The most popular neighborhoods in Chicago for flipping are Portage Park, Logan Square, Beverly, McKinley Park, Norwood Park, Irving Park, Albany Park, and Humboldt Park.
One startling statistic was that in May 2013, properties in Irving Park had 17 average days on market and a median price point of $247,295. In May 2014, properties in Irving Park had 5 average days on market and a median price point of $365,000. So properties are selling three times quicker in Irving Park and are selling over 30% higher the price in only one year! That is incredible but it is not the trend for the rest of Chicago. The rest of the city is appreciating at a 1% monthly rate on average.
With all the positive publicity and value appreciation, it is no wonder why everyone wants to be a house flipper in Chicago. The problem is that flipping a property is not as easy as it looks if you do not have appropriate resources. Many seasoned construction and renovation companies still have problems getting projects done on time and under budget so novices typically have even more difficulty with it.
There are hundreds of homes throughout Chicago that were started but never completed because the flipper ran out of money and underestimated the amount of work that needed to be done and underestimated the time to complete the job. One example of this is when someone ads a bathroom to a house because the city will sometimes require the flipper to upgrade the water supply (this can cost $15,000 or more). Not only that, many people are unfamiliar with the permit process in Chicago and do not understand how to get through the red tape and pass inspections.
That is why it is important to become educated on real estate investing if you are interested in flipping properties. There are many hurdles, speed bumps, and pitfalls that can be avoided with proper training and mentorship. And the most important key to making money flipping properties is purchasing the properties at a deep discount. Many people do not calculate holding expenses, utilities, title fees, builders risk insurance, Realtor commissions, attorney fees, etc. These expenses must be included in the initial estimate so that a wise financial decision can be made. Always remember, you make your money when you buy the house and if you are not ashamed by your offer for a flip, you are offering too much. Happy house hunting!