Many of you have probably watched those television shows about making loads of money by buying a dilapidated house and fixing it up. When you buy a house, fix it up and then sell it quickly, making a tidy profit in a very short time, it is referred to as “flipping.” So does it work? Can you make it work or is it a world of pain waiting to happen?
If you are entering into the world of real estate investing and want to take this route, then there are a few pros and cons that you should carefully consider before you start. Just like any other business there are a few things you have to be careful about.
First the Pros
• Potential profits are large and can be obtained quite quickly if the housing market is a seller’s market. You can make in a few months what you usually make in an entire year. The flippers income can be very large if you set up a successful team.
• You are your own boss. Obviously you need to keep within the law and there are some strict zoning ordinances and code requirements that you have to adhere to and there are building regulations to follow. These aside, you do get to have a great deal of control over all the decisions that need to be made.
• You are what you produce. It is a very hands on business. There is a lot of manual work, unless you want to outsource everything of course (see bullet point above). It is your heart, blood, sweat, tears and soul that make the property what it is. When you sell you get the value of all these things that you have invested into it. Nothing gives back like a successful house flip.
Now the Cons
• Risk. Flipping a house can be a risky business if you do not have a good plan to follow. This can be applied to any business. There is a skill to successfully developing real estate and turning it into something better. There is a wide variety of things that can go wrong during the process and the volatility of the housing market is the biggest one. You must be prepared to walk away from the venture with less than you expected and even zero in some cases. You just need the resilience to move on to the next one. This is just the same as if you invested in stocks, but pulling out of a house investment is much more difficult. A half developed house is worth little so you need the resilience to see things through to the finish once you begin.
• Expenses. It is expensive to flip a house. There are legal fees, realtor fees and remodeling fees. You are going to have to pay your mortgage while you are trying to sell. Your contractors will want to be paid before you sell the house. It takes careful planning and due diligence as well as financial planning and resources to afford this investment. But the rewards are usually well worth the effort.
Despite all these pros and cons, people all around the world embark on their first adventure, almost every day. The lure of large rewards often outweighs the need for caution and prudence. For many, their efforts will overcome the risks and the expense.
Are you ready to take the plunge? Have you decided to get your power tools out of the garage? If you want to start on the adventure that is house flipping, I wish you the best of luck.