In late December, my brother and I bought a house to fix up and "flip" on the north side of Columbus, Ohio. This is the house:

The house was owned by HUD, which means that the former owner probably defaulted on an FHA mortgage and was foreclosed. I didn't look back through the chain of title to try to figure out the circumstances of the foreclosure or to investigate whether there ws any shenanigans in the foreclosure process. Maybe I should have, being familiar with some of the horror stories about botched foreclosures around the country over the past couple years. We got a title insurance policy, but if our foreclosure sale somehow got tossed out Bevilacqua-style, it would be financially painful for us, as much work and money we've put in the place since buying it. But I don't think that sort of scenario is likely in Ohio, so I'll accept the risk.
The house is in the neighborhood in which I was born and lived the first twenty or so years of my life. This development was built in the early to mid 1960s and represented the finest in Central Ohio white-bread middle class tract home living back in its heyday, before the Columbus suburbs began to explode in the 70s and 80s, spurred in no small part by desegregation and white flight. My dad still lives with my stepmother in the house he bought new in '62, but he is the exception; most homes in the neighborhood are on their third or fourth owner at least. Nowadays, the neighborhood is a little dated looking and rough around the edges-- 1960s tract housing stock is not old enough to be charming, but yet old enough to be run down if it hasn't been maintained well. The yards, approaching a quarter acre apiece, are a little bigger than the typical post-war lots in neighborhoods closer to downtown, and the houses are a little roomier on average too. This particular house, checking in at a little north of 2000 square feet with 4 bedrooms, 2 1/2 baths, a full basement and a 2 car garage, is on the large end of the spectrum for the neighborhood.
The foreclosure crisis has not bypassed Columbus, and most blocks in this development have one or more foreclosure properties. The government agencies favor selling their seized properties to owner-occupants, but most owner-occupants still need a mortgage, and it's not easy to get a mortgage these days, especially on a foreclosure. If no owner occupant buyer steps up, the government agency will accept bids from investors. On the second try, my brother and I had our bid of just under $50,000 accepted-- far under the $85,000 price at which HUD had the home listed. Such discounts are not unusual; inventory has apparently far exceeded investor demand to this point, and those sparse investors out there are apparently putting in lowball offers and hoping to get lucky, it seems. My brother and I were doing the same.
Having pooled our cash to close the deal without a mortgage, the transaction went off without a hitch. We got to work on the place right after Christmas. The simple stuff, my brother and I planned to do ourselves. We hire pros for stuff like electrical work or hardcore plumbing or installing new windows and doors.
The finished basement had water damage and some mold; at some point we figure the power must have been shut off and the sump pump couldn't do its thing. The basement had to be gutted back to the concrete blocks. Once we got the wallboard off, we were pleased to see that the walls were actually in great shape and showed no water damage, so after the big demolition job and trashing it out, it mostly just needed a coat of paint on the walls and floor. The basement has been primarily my job, and I have to admit I underestimated it a little bit. Gutting a full finished basement and hauling all that debris up a flight of stairs with a dust mask and goggles on will kick your butt a little! I am pleased to say that with it trashed out and with a new coat of paint now, it looks great and the job is basically done.
In the main living area, basically every surface-- ceilings, walls, floors-- needed refinished. My brother did most of the painting, but we hired a guy to paint all the trim to save some time, and also had him paint the outside stucco. There was a lot of prep work, scraping off old wallpaper and borders, and fixing close to five decades of minor damage to the wallboard throughout the house. The chimney was damaged, allowing water to leak into a paneled wall around the fireplace in the den. As we removed the paneling, it became obvious that termites had once been at work on the sodden paneling. Fortunately, the termites only were active on the room side of the plastic moisture barrier in the wall and there wasn't any current termite activity, so the studs were okay and we just had to replace the wallboard. Most of the ceiling and wall paint is now done. Tile, carpet, and refinishing some hardwood floors are tasks still to be done. We're having pros do the tile and carpet installation, that'll be a couple weeks yet.
We had all new windows put in, which was a major expense, and had a new water heater put in. New or nearly new appliances will go in the kitchen; we've got em but aren't ready to install them because we haven't replaced the counter top yet. Several doors needed replaced; that's halfway accomplished. New doorknobs, window treatments, lighting fixtures, faceplates, faucets, plumbing back to the walls in kitchen and baths-- about halfway done there. Sprucing up the yard-- halfway done, just need some decent weather on a weekend!
I'm probably forgetting some things, but you get the picture. When we are done-- hopefully by the end of February-- this house will be in move-in-and-don't-have-to-do-a-thing-for-ten-years condition.
Our estimate of $20k for repairs was a little optimistic; it looks like we're going to come in at a little more like $23k. So our cost basis is going to be approximately $73k. I'd estimate that the house would sell quickly in the $110-$115 range, judging by sales of other comparable houses in the area. Subtract out taxes, utilities, insurance, realtor's commission, etc. and I'd estimate we are likely going to each profit in the range of $15k, maybe a little more. Obviously, there are risks involved here that could affect our profit-- the market could fall further, a sale could fall through, maybe nobody puts in an offer, and so forth, but I think my estimates are fairly conservative.
My brother and I are just basically doing this as a side endeavor-- we both have regular jobs and are getting this house prepared for sale in about two months, without really stretching ourselves too much time-wise (though my brother might disagree-- he has two young kids). An investor who does this kind of rehab flip as his or her full time occupation could easily do the same work in two months. If they could find and turn five rehabs like this per year, that would be $30k x 5, or $150k per year, with maybe a month or two break in there somewhere to take it easy. Not too shabby, in a low cost of living city like Columbus!
The main impediment to such a livelihood is capital related-- unless a flipper can completely self finance, they'd have to take out loans or find someone to put in money, which would both cut into profits and add complications. Working in the flipper's favor are low interest rates and low purchase prices.
This has been a fun experience. I live within five miles of this house, so it is easy to get over there in my spare time and do a couple hours of work in the evenings and on weekends. It's satisfying to see the changes for the better that result from your own labor. We've had a couple nice neighbors give us a thumbs up, people seem to appreciate that the neighboring house is being fixed up, and I am sure they look forward to getting a new neighbor.
I keep pretty close track of the housing market, both locally and nationally. There is obviously still reasons to be cautious in the housing market-- the latest national housing indexes have been showing that house prices are continuing to fall; it is widely known that there is still a large overhang of "shadow inventory" consisting of properties that are already in the foreclosure process or likely will be at some point, which will eventually hit the market; unemployment is still high; mortgage credit is still hard for many to get; and so forth. However, I think the prices that can be had on distressed properties, at least in my area, are now providing a high reward, low risk value proposition for investors, even amateur investors like me, and therefore I would be surprised if not shocked if prices on distressed properties went much lower.