House flipping is a method of real estate investing in which you purchase an undervalued home, renovate and sell it again just a short time later. The reason? High profitability, a strong supply of, and a myriad of other benefits are drawing more people to this type of investing than ever before.
At the same time, it’s not a style of investing that is 100% straightforward. Needing a lot of active overseeing, these projects can carry just as many pitfalls as they do advantages.
These are the top 5 reasons you need to start flipping houses, and pitfalls to avoid:
As mentioned above, house flips can come with significant profits for the investor. If the flip is managed correctly, keeps to the budget and timeline, and is sold again within the right timeframe, the profits earned can be higher than the annual real estate investor’s income earned from a traditional job.
The Caveat: House flips can come with hidden or surprise costs that make them less profitable, or they can be located in markets where there is little demand. The longer the home is on the market, the higher the cost to the investor will be.
Along with the level of profitability, there is the advantage of making a profit within a short time. Compared to other real estate sales, house flips are much faster – closing is quick, renovations were done to a timeline and the goal is to resell as soon as possible.
The Caveat: The speed at which things need to happen can add a lot of pressure. If the investor doesn’t have a ton of time to dedicate to overseeing the project, it can be difficult to stay on top of contractors and all the tasks that need to be completed.
Flipping a house for the first time will give you the opportunity to gain deeper insight into what it takes to do construction, manage the project and even get a clearer understanding of how buyers perceive properties. This type of knowledge is hugely valuable and can be used to optimize future projects.
The Caveat: This type of investing is time and resource-intensive. If you’re only doing this part-time, you’ll need to team up with a good foreman or contractor that can keep things on track while you are absent, and this service comes at an additional cost.
It’s common knowledge that in many sought-after real estate locations, the supply of new construction is low. In this case, you get the opportunity to renew an older character home and give it a new lease on life-preserving while modernizing.
The Caveat: Older properties can come with some risks. Popcorn ceilings, lead pipes, and other hazardous materials need to be removed and can become costly.
Flipping a home and going through the contractor-vetting process can help you build valuable connections in real estate that will make your next flip easier to get to market. It’s not uncommon for house flippers to take on a project together, or for them to build long-term relationships with service providers like lenders which can lead to more advantageous interest rates.
The Caveat: Keeping these connections strong will mean doing your part: this means sharing the knowledge you have, and making the effort to attend networking events (now made easier by being widely online)
Investing in house flipping holds a lot of potential for profitability, but it’s important to make an informed investment decision. It pays to learn more about the art behind it, starting with this full guide to buying and flipping houses.