House Flipping Stops WorkingIt was bound to happen. An article today at Money.CNN.com highlights the woes of a couple who have made a lot of money on house flipping, and are now stuck with a house that won't move.
At MortgageGuide101.com, I've been following house-flipping for some time. In fact, my most recent house-flipping entry was on 10 mistakes to avoid. I've generally been against house-flipping as your sole source of income, because I knew a coming downturn in the market would make it unprofitable unless you could buy and hold.
Dave and Sharon Corey are a classic case.
Dave Corey has been following what seemed like a good strategy for the last few years: buy cheap; rehabilitate; sell higher. Get a run-down property that has a good roof and is structurally sound, and spruce it up. Do the work yourself as much as possible to save on costs. Then sell the property for a tidy profit. However, Dave's latest purchase in Ocala, Florida has been in his hands for 10 months. So far, he's out of pocket at least $160,000 and he hasn't been able to sell at a price of $178,900.
Corey's solution is one that other house-flippers may have to consider: a deal with a young couple that has them leasing the property with an option to buy. The couple is paying $1200 a month, and $200 of that is going to the down payment.
In the meantime, while his money is tied up, Dave's looking forward to when he can get back into the flipping business. He's hoping his wife will be willing to do it actively with him, as opposed to just sharing in the financial aspect. (I hate to tell him this, but it might be awhile yet. I don't think this market is going to turn on a dime.)
The bigger problem with many house-flippers is that they are in exotic mortgages. These are the interest only or even capitalized interest schemes that can really create a financial mess. If you are in any kind of exotic mortgage, get out! Lock in an interest rate on a good first mortgage with a reputable and financially stable company, and get your costs under control. If you are shopping for a new, fixed rate mortgage, doing your legwork on the internet can save you some time and effort. I invite you to check out some of the sponsors for this site in your search for the right mortgage.
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