What was it, three or four short years ago, when you could find a little house in a desirable area that needed some paint, putty and petunias, and turn it around a few weeks after closing for a hefty profit?Back then, the concept of losing money on real estate seemed far-fetched. But it happened. Those qualify-by-breathing subprime loans dried up, people couldn't make payments on loans that adjusted way upward, and tons of addresses hit the multiple-listing service. With too much supply and little demand, many of those house-flippers with dreams of early retirement (and maybe their own cable TV show) have abandoned the quick-turnaround real estate market. But for some, there's still opportunity.
Roberts tells those looking to make a killing in the market to take their time and practice patience. "This is the best time in the past decade to buy real estate, but you have to plan on holding on to it for two to five years until the market finishes correcting," he says. His advice is hard to hear when people scan the seas of open houses in nearly every neighborhood and watch TV shows like Bravo's Flipping Out, where an entertaining young investor makes six-figure profits on each sale. "I have people come to me and say, 'Show me how to do that,'" says Marion Napoleon, a Dallas-area Realtor. "They make it look so easy on television, and it's not, especially in the market of today. It's easy to lose money."
"Even if your hope is to sell the property quickly, you need to be prepared for a long-term wait," says Walter Molony, a spokesman for the National Association of Realtors. "We always recommend that you research the cash flow of comparable properties and how long it takes to rent them. Also, the rule of thumb is to have six months of mortgage payments in reserve, since things don't always work out as planned."
Getting financed can be an issue, of course, since loan qualifications have tightened considerably in the last couple of years. When you're talking about investment properties, lenders want to see squeaky-clean credit reports, low debt-to-income ratios and sizable chunk of cash for a down payment. "Some people who in the past may have done this separately are coming together and forming investment groups to purchase properties outright or to finance them," says Napoleon. "This way, risk is spread out." In that mode, look for properties in neighborhoods that don't have many rentals; that keeps your competition down if you have to hold the property for a while. "That's one of the little things you need to look for that the investor of a few years ago may not have paid attention to. He or she just figured that they'd sell in 90 days," says Molony. And finally, why are those house-flipping shows still so popular? "My wife loves them," says Molony. "But she watches them for the same reason lots of other people do. Not to learn how to make money, but to see how to economically fix up the house you have."