Expert: Lisa Webber - 2/1/2010

Question
Hi and thanks in advance for answering my questions. I am a veteran of the army and I am considering buying, renovating and selling homes in md. There are alot of homes in baltimore city that are below 30000. I have 50000 to start and I was wondering are these houses any good to pursue and is 50000 enough to get started in flipping houses? I have many questions as I have no experience in real estate.

Answer
I think that renovating and re-selling homes can be a very profitable venture.  If I were you, I would do a lot more studying before diving in.  A book that I just read that is pretty good is called "Flipping Confidential".  Gives you an idea of some of the pitfalls that you may run into.  

I would also consider teaming up with a partner that has experience in general contracting to help you manage the job.  I would want to start with more than $50k if I were you.  The homes in Baltimore that are below $30k are generally homes that have to be pretty much gutted to the studs.  They are being bought by investors that are fixing them up and some are holding them, renting them out, and waiting until the market gets better.  

Investing in Baltimore City is a very risky venture, even if you are familiar with the city, but the more you learn, the better off you are.  You'll want to see which areas are going to benefit first from improvements in the city, such as the Johns Hopkins expansion.  Blocks that are farther out will take longer to improve if they improve at all.  

I have worked with people for example who have purchased on North Streeper Street.  Now some homes on North Streeper can be sold for a good amount of money when fixed up, IF they are located in Canton or very close to Patterson Park.  IF the home is a little farther away, say the 400 block of North Streeper, you are looking at a lower maximum sale price so you would need to make sure you bought the house cheap enough and spent a small enough amount of money to fix it up (and make it really nice) so that you can sell it in the maximum range (about $125k) and still turn a profit.  A gut job in that area may cost around $20k, wheras a gut job in the 100 block may be closer to $60 or $80k, but when completed may bring closer to $200k.  You're going to want to study Baltimore city literally block by block because the key to turning a profit is going to be your acquisition price verses the probable sale price.  Another thing to remember is that there are literally thousands of row homes available for sale in Baltimore City, so your "flip" will have a lot of competition and could stay on the market for months and months.  

I have seen people get stuck with investments in the city and lose their shirts.  You'll want to have a strong stomach, a good amount of cash to risk, and a good team to work with.  

Even experienced investors have lost money in the city so I would do a lot more homework before venturing out and make sure you can lose the money before spending it, just in case.  If you start a project and find out it is going to cost way more than what you originally planned, you could be in a position where you'll need to sell to another investor that has cash and you may end up taking a loss.    

You probably have hundreds of questions, which you should.  You're doing the right thing by starting to ask questions and do a lot of research.  

I hope this helps give you some food for thought - good luck to you!