By Art Holliday
ST. LOUIS (KSDK) - You may have seen them on reality TV. They're called house flippers; investors who buy a property, make some repairs, then sell quickly for profit.
House flipping is high risk, high reward. If beginners are willing to learn, there is money to be made by house flipping, especially in a real estate market that's heating up. But first you have to find the sweet spot.
Michael Malashock didn't set out to flip houses. His major at the University of Wisconsin was consumer affairs.
"Nothing related to what I'm doing at the moment," Malashock said, laughing.
At the moment he's in the investment property business with his father Larry.
"I got out of college and I didn't know what I really wanted to do. We were doing a lot of work at one of our houses which I helped out at, and I loved it. I saw the potential of the market right now. It was something fun and interesting and not a desk job for me," he said.
After renovating several rental properties, the Malashocks' first flip is an 1895 home in the Shaw neighborhood of St. Louis.
"We got it for pretty cheap and we saw how big it was and how much potential it had," said Michael Malashock.
Location, location, location, the famous quote about the three most important things about real estate, also applies to house flipping, said Larry Malashock.
"No matter how well you renovate a house if it's in the wrong neighborhood, the wrong area, you're not going to be able to flip it no matter what," said Larry Malashock.
Home flipping experts often talk about the importance of finding the sweet spot: the right purchase price, not overspending on renovations, and the right sale price; $34,000 was the purchase price for a rundown house that had to be gutted. The renovation estimate is around $160,000. The sale price hasn't been set, but comparable houses in the neighborhood go for $250,000 to $290,000. The Malashock's profit could be $75,000 and up.
"Right now, if we are staying on our budget, it will be a reasonable profit for a house like this in this neighborhood, especially," said Larry Malashock.
The Malashocks say people new to home flipping should set aside extra money for inevitable surprises and painful lessons. After a couple of copper thefts, they now immediately put alarm systems on the properties they buy. Profit margins can increase if home flippers are able to self finance instead of borrowing money to buy a property.
"Not having to pay mortgage payment every month so it allows us a little extra cushion on finding the right houses at the right price," said Larry Malashock. "If we were going to take out a bank loan and having to add in the mortgage and interest each month it would make a difference on the profit level."
Veteran real estate agent Terry Yuede advises to do your homework because home flipping isn't like reality TV.
"You can't go watch a couple of episodes of HGTV and think that you're ready to flip a house because there's a lot to it," said Yuede.
But if you find the sweet spot? Sweet.
"We're always looking to buy for the right price," said Michael Malashock.