McClatchy-Tribune Flipping houses can be tricky and expensive. Flippers have to make selective upgrades but not include everything and the kitchen sink.

Gambling is often associated with the pull of a slot machine, a deck of cards or a throw of the dice, but it’s rarely attributed to a 1,200 square foot, two-story corner lot Craftsman home complete with two-stall garage and a lovely view of the park.

Yet, that is exactly what thousands of Americans do each year with the practice of “flipping” houses in an effort to make a lot of money very quickly. According to an article on the web site flippinghousetips.com, veteran flippers average between $5,000 and $10,000 profit per successful transaction.

The basics of flipping real estate is best described in three easy steps:

1. Buy the house or piece of real estate that is determined to be undervalued.

2. Strategically invest into the property with interior and exterior improvements. Improvements that may be as small as a fresh coat of paint and a few planted trees, or as large as a revamped kitchen or bathroom with hardwood floors replacing old carpet.

3. Put the house back on the market with a dramatic price increase that dwarfs the money spent on the improvements.
It sounds easy enough, but the flipping process can be anything but.

“Right now, you have people jumping in on frenzy, and it will bankrupt a lot of Joes and Susies who have no business doing this,” Manuel Iraola, president of Miami-based Homekeys.net, said to msn.com. “I mean, my wife is a doctor; you don’t see me going out doing heart surgery.”

Inexperienced flippers who don’t do all of their homework are prone to a bevy of mistakes.

One of the largest mistakes is a lack of research in the area the real estate is purchased. A flipper that purchases a somewhat deteriorated home for $70,000 with hopes of selling for $90,000 is in a lot of trouble if they find that $70,000 is the average price of a home in that area.

The demand would be nonexistent because of the inflated price.

Miscalculating the time needed for improvements is another mistake. Once a flipper takes over a property, they are responsible for mortgage payments just as any person would be for their primary residence. Every month needed for repairs or a better offer is another mortgage payment. It doesn’t take long for payments to put a serious dent into any potential profits from the flip.

According to msn.com, flippers will on average hold onto a property for three to five months before selling.

And finally, flippers should always make sure they have the funds for the process. Flipping requires deep pockets.

And even though an investor has the ability to make a profitable deal right out the gate, that doesn’t mean it’s time to quit the day job. Successful full-time flippers focus on making cash deals, but flippers who do it as a side business must rely on loans from the banks.

Despite the current rocky times in the real estate market, flipping real estate continues to be a popular and attractive option for the ambitious investor. However, turning dirt into cash in the housing market can be a gamble that can equal anything Las Vegas has to offer.

Chuck Blount | 210SA contributor