Editor's note: As a special feature for April, TheStreet.com offers a 20-part series on virtually everything about real estate. This installment is part 17.The state of the housing market is about as predictable as my 4-year-old daughter. Some days it's all good, some days it seems like it just comes crashing down. Still, many wealthy people will tell you that real estate is the way to make millions. And that regardless of its ebbs and flows, real estate always has way of correcting itself. But all the latest statistics show that home sales are down, prices are down, and, as a result, homeowners' confidence is down too. To make matters worse, there were 430,000 foreclosures in the first quarter of 2007 according to RealtyTrac, an online marketplace for foreclosed properties. That's up 27% from the previous quarter and up 35% from the same quarter last year. So maybe its not the best time to be dabbling in real estate. But like the old saying goes, "one man's pain is another man's gain." And so it is with real estate. Enter the flippers, the folks who buy and sell homes for a living. Remember, when a property goes into foreclosure, the bank takes it over. But the banks have no interest in being landlords. So they're eager to sell the properties. "That's why some of the best opportunities to buy real estate cheap are out there these days," says Ralph R. Roberts, author of
And foreclosures and the recent subprime fallout are not the only reasons homes go on the block. Roberts points to the four D's. "People are always dying and getting divorced. There are always people with drunkenness problems -- from either alcohol or drugs -- and there are always 'don't-wanners,' folks who just don't want their homes anymore." So there are always opportunities out there. But should you take them? Not unless you have the cash to play the game. Here's why: Let's say you decide you want to buy the little vacant house around the corner, fix it up and sell it. First, you need a chunk of cash to put a down payment on the house and secure a mortgage. Then you need the monthly cash flow to pay the mortgage, interest, taxes and utilities on your new little money pit. Now you have to fix it up. Are you handy? Do you have any idea where your hammer is? If not, you'll have to pay someone to do some renovations. That could take months. So now you'll have to carry that little house, plus your primary residence where you sleep (albeit restlessly) at night. And that's exactly why you should not quit your day job to become a flipper. "Quite frankly, if you don't have a secure day job to begin with, you probably shouldn't even get involved with flipping homes at all," says Roberts, who also runs
But let's face it, many folks make a very good living buying and selling homes. So how do you get a piece of the action? Start by mapping out an area between where you work, live and anywhere else you go to more than once a week. If you decide to buy some property, start with the areas you know best. And you'll need to visit them regularly if you buy homes that need renovations. Gotta keep a close eye on those contractors. Then start small. Buy one house, fix it up and try to sell it. Then try again. Keep a log of the amount of hours you put in and, of course, keep diligent records of your revenue and expenses. So then let's say things start to go well. You're buying and selling and making some money. Now can you quit your day job? "Only when you are making twice as much as your current salary for two consecutive years," suggests Rogers. How 'bout that? (That's the kind of conservative advice I like.) No surprise, not everyone thinks the flipping market is hot these days. Flippers are only interested if they can get out quickly, and these days they can't, says John Winer, a transaction real estate partner with Ernst & Young. Granted, the momentum game of a few years ago is history, and the days of buying a pre-construction condo, only to flip it before the foundation was poured, are long gone, especially in hot markets such as Miami and Phoenix. There are just too many unsold condo units out there. The only things you can flip in those areas are your morning pancakes.
But that's why this is a regional game, reminds Chris McElroy, the regional vice president for the National Association of Realtors. Some areas of the country are in a housing slump, and others like parts of the Midwest are actually seeing their prices rise. So it's imperative you understand the market you're buying in. And the flippers are not gone. "I actually think that when prices drop a bit more, we will see people come back to the market," says Winer. The buyers will return. Whether you believe the time is right or wrong, if you have any interest in flipping homes, start investigating. Understand your area. Then you'll be armed with enough knowledge and gumption to flip a home of your own when you feel the time is right. I might try it too. Quite frankly, I have a better chance of understanding the real estate market than my 4-year-old anyway.