Anyone who is familiar with house flipping knows that the market really determines the profit margin of a flip. If the market is trending down, the profit shrinks with it. Yet, what is truly the decisive element in the process is the amount of work put into the property. In a falling market, it is important to know how much of an investment any property will require, and if it is worthwhile.

A Short Story

The market began to fall in early 2007 in this area. At the time, house flipping still made sense, especially for a fast turnaround. Houses where selling within three weeks, prior to that time and the horrors of foreclosures had barely hit the market. Therefore, when a nice, 60 year old home came onto the market, it was too good to pass up. It needed about $30,000 worth of work put into it but could be sold for about a 30 percent markup. It looked like a good deal.

Over the course of the next few weeks, during the closing process for the property, house prices started to fall, slowly. While worried, we were not overly concerned considering the house was well worth the investment. However, projects took longer than expected and the house was not listed for two months, at least three months after preliminary comparisons were done. After investing $20,000 into the property, we pulled the plug on the last $10,000 worth of renovations. They were simply not going to happen since this pushed the price of the property too high. We settled for selling just above the breakeven point, after being on the market for nearly four months. Still, we turned a profit.

Managing Costs

What I have found in the house flipping business is that you have to tailor your expenses to fit the market. It would have been nice to add onto the kitchen of this home as we had planned, but it would have pushed the asking price too high, cutting into profits in a time when the market could not handle it.

Here is what we did to trim costs:

•    We pulled the kitchen expansion that would have cost an additional $6000 in labor and materials.
•    We cut the costs in landscaping, fixing up the current landscape instead of replacing it.
•    We put about $1200 into additional marketing methods to help sell the property even though other properties were on the market for six plus months without sales.

Still, it is important to note that house flipping can be successful in any market. You may need to keep the property on the market longer, and it may take you some fine-tuning to manage costs better, but at the end of the day, there is still profit to be made in this market. The key is to know where to cut costs so that you can still make money. I have found that my house flipping strategies have changed considerably during this timeframe. Next time, I may have to hold a property and offer a short-term lease, but I will still turn a profit!