Flipping Houses – Meaning, Example and How it Works

Flipping House Meaning

Flipping House is the term which is used in the context of real estate market. The dictionary meaning of flipping is to spin or rotate and in case of real estate market, it refers to that strategy by which an individual purchases a house with an intention to sell it for profit within a short period of time which is usually a year.

How Flipping House Works

The flipping house strategy cannot be used in those places where the real estate market is in a slump. In simple words, it works best in those real estate markets where the property prices are moving upwards. Another way in which this works is an individual first purchase an old house than invest some money in order to renovate it and make it look attractive and then sell that house to prospective buyers for the profit.

Flipping House Example

It can be better understood with the help of an example, suppose an individual gets to know that an international airport or mall is coming shortly in particular area of the city and on the basis of that news he or she buys a house for $100000. Now after 6 months an international airport or mall opens and price of house shoots up to $140000 and an individual sells it than he or she will make $40000 profit in six months if one ignores interest rate.

Flipping House Risks

The biggest risk as far as the flipping house strategy is concerned is that real estate price may remain stable or decline instead of rising or for that matter the development due to which an investor has anticipated price rise and purchased the property may not materialize. Hence in the above example if the international airport or mall does not get built in the area than the price of property in that area will not increase leading to locking of the capital of the investor.

As one can see from the above that this strategy is good when real estate prices are continuously rising the moment property prices stabilize or decline this strategy will not work and an individual may have to face loss if the individual has taken a loan for purchasing the house which carries high rate of interest. Hence in other words flipping house leads to the entry of those individuals who instead of purchasing the house for long-term purchase house for speculation purpose leading to bubbles like situation in the housing or real estate market.

0 comments… add one

Leave a Comment

Related pages

examples of a vertical mergerunclaimed dividendmarginal costing formatadvertising monopolistic competitionunqualified audit opinion definitioncross rate formulaadvantages and disadvantages of mixed market economyconservatism concept accountingdifference between complementary and substitute goodsdefinition of skimming pricingadvantages and disadvantages of industrializationthe accumulated depreciation account is calleddifference between systematic and unsystematic riskindirect quotation definitionsyndicated loan exampleordinary shares advantages and disadvantagesthe advantages and disadvantages of capitalismwhat are complements and substitutes in economicsdisadvantages of advertisementsdistinguish between trade discount and cash discountdisadvantages of international trade for developing countriesimplicit and explicit cost in economicswhat is the full form of asbaadvantages and disadvantages of convertible bondscharacteristics of monopoly and oligopolyexamples of complements economicswhat is the difference between direct expenses and indirect expensespure conglomerate mergerloan capital advantages and disadvantagesthe laws of diminishing returnsdefine subventionwhat is a major reason for conglomerate mergersfund flow statement definitionredeemable cumulative preference sharesdifference between capital and drawingsaccounting full disclosure principleweaknesses of a command economywhat is the main difference between socialism and capitalismexample of debit noteadvantages and disadvantages of forecastingfull form slrexamples of industrial productsdefine prestige pricingdisadvantages of price floormerchant banking vs investment bankingwhat is tariffs and quotasmeaning of debentures in hindipositives of urbanisationwhat are the problems of barter systemcurrency cross rate formulaprofitabilty ratioadvantages and disadvantages of credit and debit cardssingle seller monopolydistinction between bookkeeping and accountancywhat is barter system with examplewhat is bearer chequefeatures of capitalist economyfounder of icici bankform of fdiwhat is the difference between accounts payable and accounts receivablewhat is a horizontal mergerdisadvantages of delegationterm loan and overdraftfull form of kpmgadvantages and disadvantages of functional organizationtariff vs quotawhat is substitution effect and income effectdiscounting billswhat is an unearned revenuemixed capitalism definitionwhat is substitution effect in economicsmerits of e bankingdistinguish between normal and inferior goodsdefinition cost push inflationconglomerate exampleconglomerate corporationimplicit vs explicit costsdefinition of fixed capital