House Flipping: Red Flags for Buying a Flipped House

If you’ve ever watched HGTV, you know all about house flipping and how dazzling the final product can be. And if you’re a home buyer looking through real estate, you may come across some of them. These properties may seem brand new: gleaming kitchens, sparkling bathrooms, beautiful finishes that make it look like no one has ever lived there. However, what at first glance looks like an immaculate new build can be a turnaround, and it pays to look deeper before committing. Read on to learn more about how house flipping works and what you should look out for as a buyer.

What is house flip?

House flipping is a common real estate investment strategy in which a home is purchased as cheaply as possible, renovated, and then resold for a profit. Investors in the U.S. will have flipped approximately 309,000 single-family homes and condos in 2023, according to a report from real estate data firm ATTOM.

Companies that buy houses for cash and iBuyers tend to be some of the biggest flippers. They move quickly so that they can convert each house as quickly as possible and thus reduce transport costs. Quick cash in your pocket is certainly attractive to those who sell properties to these companies, but what about those who buy them?

The good news is that you don’t have to deal with the headache of finding a contractor who can do all the work needed: the work is already done. The bad news is that it’s up to you to make sure it’s done right.

“Real estate investors often skimp 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 create repair estimates. “Buyers should pay special attention to these areas so that quick cosmetic fixes cannot mask the underlying problems.”

Is buying a flipped house risky?

Not necessarily, but it is possible.

Although buying real estate involves risk, flipped properties can be a bigger gamble due to the ‘buy low, sell high’ business model. Unlike a home where the owner maintains it regularly, a flipped home was likely in a state of disrepair.

“The goal of the flippers is to get the most out of the sale with the least investment,” says Sallie Ellison-LaRocco, home inspector at WIN Home Inspection in Indiana. “So often expensive repairs are neglected or hidden, especially things like the roof and HVAC systems.”

Henley recently saw a home that had “a large crack in the foundation that was previously visible from the street at the front of the home, even in Google Street View,” he says. “The flipper covered the front of the house with modern wood paneling, including the area with a significant structural problem. If the home inspector had not thoroughly inspected the crawl space foundation, this would have been missed.”

Erin Hybart, a real estate agent and homeowner from Louisiana, recalls a recent property that “looked beautiful on the outside” but suffered from many problems beneath the surface. “Some of the electrical wiring was duct taped into the wall instead of being properly repaired,” she said. “The flipper used poor materials, which led to a major roof leak months after the sale. The new owners had to empty the house to repair what was hidden.”

“In another home, I saw a wall oven added to the kitchen, and the area around it bricked up to give the appearance of a column,” says Hybart. “During a renovation it turned out that the wall oven was powered by an extension cord that had been spliced ​​into a wire in the masonry. It was a fire waiting to happen.”

Red flags to look out for

Many house flipping companies obviously take great pride in their work and ensure that their homes are in excellent condition before putting them up for sale. Still, as a home buyer, it’s crucial to understand the warning signs. Red flags that you – and your home inspector – should look out for include:

  • Lack of documentation: Hybart recommends requesting a thorough paper trail of the project. “Ask for receipts and invoices for repairs made to the property,” she says. “If the flipper can’t produce the receipts, I would walk away.”
  • No permits: Obtain permits for all work performed to verify that the pinball machine met local building codes and regulations. If there are no permits, be skeptical; that can be a big problem.
  • Scarce property disclosures: Most states require home sellers to provide the buyer with a disclosure statement detailing previous repairs, damage, safety issues and more. A lack of information on real estate disclosures may simply mean there aren’t many issues, but empty disclosures can 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 we should specifically look out for, says Josh Rudin, owner of Arizona-based ASAP Restoration: “If mold is not mentioned in the material facts of the property disclosure, then it is not tested. he says. “If it hasn’t been tested, there’s no way to prove that the black spot next to the washing machine is really mold. If there’s no proof, maybe it’s just dirty and can be painted over and forgotten.”
  • Different roof tiles: Are the shingles on the roof all uniform? If it looks like only a few shingles have been replaced, that could be a sign that a repair needs to be made. This may mean replacing the entire thing sooner rather than later.
  • Problems closing the door: Ellison-LaRocco recommends examining how well doors close, especially in historic buildings. “One trick to get your attention about possible foundation problems is to determine whether the interior doors, especially on the second floor, close properly,” she says.

Tips for buying a converted house

If you find a flipped property you love, don’t despair; just be a little extra careful. Your real estate agent will be invaluable, especially when it comes to researching the history of the house and learning about the work that has been carried out. Ask questions and make sure you are comfortable with the situation.

And while a home inspection is important with any home purchase, it’s even more important when the home has recently undergone a major facelift. Just as you’ve compared countless options to find the right home, Rudin recommends taking a similar approach when selecting a home inspector: “Look around when you’re trying to find an inspector,” he says. “Ask for a sample report from a previous home they have done, and then compare the reports to see how thorough and in-depth they are.”

Also make room in your agenda to attend the inspection. “We love it when customers come to us so they can see firsthand the findings, such as a leaking dishwasher connection or an improperly ventilated bathroom fan,” says Ellison-LaRocco.

Even if you notice some potential warning signs, it doesn’t necessarily mean you should walk away. You may be able to leverage these issues to get a better deal. Remember, the investors are working to make profits as quickly as possible. They may be willing to lower the price or make concessions to ensure you don’t walk away from the sale. If you can address the issues yourself and get a good deal, you may find yourself wanting to make a real splash during the celebration.

Frequently Asked Questions

  • Buying a flipped home can be a good decision, but be sure to conduct a thorough home inspection that looks at every inch of the property to ensure no major corners have been cut. Look beyond the cosmetic improvements and stylish finishes to ensure that the most fundamental aspects of the home, such as the plumbing, electrical system, roof and foundation, are in good condition.

  • It really depends on the company. For the most part, yes: most companies that specialize in flipping houses are legitimate real estate investors. But as in any industry, some companies can be inexperienced, or worse. Do your research: Search online reviews, check ratings or past complaints with the Better Business Bureau, and try to get an idea of ​​how long the company that turned things around has been in business to see who is behind your potential purchase . Your real estate agent can help you research the history of the property.