Thanks to home improvement and DIY television shows, the concept of “house flipping” has become a phenomenon in the past two decades. It seems like an easy plan — buy a house for cheap, fix it up and sell it for a considerable profit. That may be the story that you see on TV, but it isn’t as simple as it seems.
The whole concept is to invest some money in a property that is on the low end of the real estate market. Many foreclosures and bank-owned homes are generally the ones that go the quickest. You want to buy for cheap and sell high. However, selling high requires a lot of work not just on the house itself, but often on the property as well. State PM warns that sometimes cheap apartments are cheap precisely because they need a lot of work to become habitable again.
Being able to turn a property around for a profit takes time, a lot of effort and money. If you are thinking about trying out house flipping, keep these things in mind before you get started.
It Takes Money
Although there may be advertisements for “no money down” house loans and other fancy investment opportunities, be careful where you choose to get your funds. Traditionally there are bank loans or mortgages, but there are also investors that may be able to help with the purchase costs. Remember to factor your taxes and utilities into your start-up costs as well. Then there is always the interest that you will be paying. The longer the project takes, the more interest you will have to pay out of your expected profits. Of course, if you can pay cash for the property, you can avoid any interest worries. Your best bet is to research all of your financing options before making any commitments.
It Takes Skill
You may think that you have what it takes to upgrade and remodel a home, but for the average DIYer, it requires more skills than you may have. If you are a tradesman in construction, carpentry, plumbing or electrical, you may be ahead of the game. There may be large parts of the project that you can handle yourself, but most people will have to bring in qualified contractors. It’s not just the people you need to bring in; it’s also the equipment. For longer projects, it may be in your best interest to look into construction equipment financing for your compressors and smaller equipment rather than paying extended rental fees.
It Takes Time
When you factor in the time that it takes to find a suitable property and make the purchase, you may already be a few months into the project. Then you have to deal with the renovations. Delays in work can cost you money by the day and eat away at your profits quickly. You have to make yourself available to all of your workmen and contractors at all times to make sure the project goes smoothly. Flipping houses is not a weekend job. Once the project is finished, you then need to wait for a buyer. If you were considering starting a flip and assumed that it might only take a few months, you would be very wrong. In most cases, a full flip will take anywhere from 6 months to a year.
It Takes Knowledge
You may have a good understanding of the project itself and the logistics that have to go into it, but there are other things to consider. Knowledge of the real estate market in the area, property taxes, zoning laws, and tax laws all come into effect when you are flipping a home. Talk to a realtor first and find out if the property that you are interested in buying is in an area that you could potentially make a profit, and get their opinion before buying.
