The Benefits and Risks of Flipping Houses
Have you ever watched one of those “house flipping” shows on TLC or HGTV and thought, “I can do that”?
Although these shows often mention some of the issues encountered during renovation projects, they don’t tell the whole story. For example, the people working on those houses are professionals with big budgets—and the audience rarely sees the dirty work.
Before you run out and buy a home to flip, take the time to weigh the pros and cons.
Potential to Make a Good Profit
The most obvious reason for flipping a house is to make money.
For companies and individuals that do this full-time, flipping homes is a lucrative business. Not only can you make significant returns on your investment, but you can do so relatively quickly given the right scenario.
Though it will take a lot of time and money, there is a lot of valuable experience to be gained from flipping a house.
Regularly purchasing homes and materials will help you develop your negotiating skills. The ability to delegate tasks, manage your time, and hold people accountable will translate to all kinds of businesses. Of course, you will also learn about construction and real estate.
Rehabbing Homes is Rewarding
Even if you’re only interested in flipping houses for the money, you will quickly learn that there are other rewards.
When you renovate and sell an old home, you’re giving it a new ‘lease’ on life. You’re taking what is often an eyesore and creating something new for a family to make memories in. You may also be improving the quality of life on the street and in the neighborhood where the house is located.
Potential to Lose a Lot Money
No reward comes without some degree of risk. Although you can make a lot of money quickly, you can lose a lot of money just as fast.
One of the best ways to purchase homes for flipping is through auctions or foreclosures. In situations like these, you may not be able to do a full inspection and determine all of the issues ahead of time. It’s a gamble.
Unanticipated expenses will arise even with careful foresight and planning, and major issues like cracked foundations, mold, asbestos, or the need for new plumbing could instantly lower or erase your profits.
Fluctuations in the real estate market can also create headaches. If you’re unable to sell your home quickly, you will have to continue to pay the mortgage. These are known as holding costs. Every day you hold the home after it’s ready to sell, you’re losing money.
Special note: there are mortgage rules in place in regards to property flipping that may cause you problems once you try to sell the house. Be sure to check with a mortgage banker at First Bank first.
There’s no way around it: flipping houses is a stressful and time-consuming business.
Things always take longer than expected and nothing ever works out exactly as planned. You’re going to make mistakes. Deliveries are going to be wrong. You’re going to miss deadlines. The more experience you have, the less likely you are to get derailed, but experience only comes with… well, experience.
Where to Start
Still interested in flipping houses? If so, start by making sure you have plenty of money saved up to cover bills for as long as possible while you’re getting started.
You’ll need a lot of capital up front, with no guarantee when or if you’ll see that money again.
Seek out advice and knowledge from quality resources. Ideally, find a mentor that can show you the ropes. Having someone to turn to when you’re reaching your breaking point will be extremely valuable.