Flipping Houses: Still a Good Investment?

Over the last fifteen years or so, house-flipping has become a real business in the United States, even inspiring a cable network show. It means buying a house (preferably below market value), making some inexpensive improvements to increase its value, and reselling it quickly for a profit.

Because of recent mortgage schemes and the booming housing market, this has helped quite a few people make a very healthy living. Most have invested a lot of sweat equity in repairing problems in the house themselves, and often investors have real estate industry expertise. Flexible mortgage programs where the buyer pays interest only, or where the interest rate is at ludicrously low levels in the beginning of the loan, have added steam to the practice of flipping.

Problems with Flipping

You're familiar with the old saying, "If you believe that, I've got some swampland in Florida to sell you." This came from one of the earliest modern examples of real estate flipping, the Florida Real Estate Bubble.

Back in the early 1900s, municipalities began draining the swamps that, until then, had been the bulk of Florida land. The resulting flat fields were rich farmland in a fantastic growing climate. Farmers and developers started snapping up the new lands. On the coasts around these areas, other developers started buying up tracts of oceanfront property and selling them at a enormous profit.

As word about the great Florida climate spread, and as America became increasingly mobile, a housing boom began. By the mid-1920s, homes and commercial properties of all sorts were being flipped -- in some cases, the same property sold ten times in one day. And then the reality came out: the Florida transportation infrastructure was unable to handle the booming population. A shipwreck in Miami's harbor blocked ocean traffic for a year, forcing shippers to use trains. And the trains, unable to cope with the sudden flood of traffic, embargoed all shipping other than food. The Florida land bubble began to deflate rapidly, and by the 1929 Stock Market Crash much of the land bought for fortunes was virtually worthless.