Posted: Wednesday January 4, 2023
Flipping houses, otherwise known as wholesale real estate investing, is an investment strategy in which an investor purchases a piece of property for cheap and then turns around and sells it for a profit. Whether that profit is made from price appreciation or capital improvements doesn’t matter. The key is to buy low and sell high.
The above information is a simple overview of house flipping, but what follows is a more in-depth look into the pitfalls of this type of investing.
1. Not Having Enough Money
Real estate investing is expensive, no matter what type of investment opportunity you get in on. When flipping a home, every day you own it costs you money (mortgage, interest, taxes, utilities, etc.). Many investors purchase properties that need repairs in order to keep acquisition costs low. This means repair costs have to be factored into the amount needed to successfully flip a property. It’s vital that you research all the costs associated with buying, owning, and repairing a home in order to sell it for a profit later.
2. There’s Never Enough Time
Flipping a home is time-consuming, especially if it needs repairs first. You’ll spend weeks, and sometimes months, looking for the right property to buy and spend time making repairs. Even if you don’t do the repairs yourself, you’ll still need to supervise the operation. Once everything is done, you’ll need to put the home up for sale and show it to prospective buyers. That’s a lot of back and forth if you do it yourself.
3. You Don’t Possess Enough Skill
If you aren’t handy with tools or don’t know how to lay carpet or fix a sink, flipping houses may not be for you. Most of the profit made from flipping a house comes from being able to do a majority of the work yourself. If you have to hire someone to make repairs, you’re cutting into your profits. Many house flippers are actually construction, plumbing, and electrical professionals with the skills to do most of the work themselves.
4. You Don’t Know Enough About Real Estate Investing
The real estate market is volatile, making it difficult for the average Joe to know a good deal from a bad one. To be a successful flipper, you need to be able to spot a good deal – the right property, located in the right place, selling for the right price.
Aside from the market, you also need to understand real estate laws, tax laws, and be able to choose which repairs are necessary and which are not.
5. You Aren’t Patient
A good house flipper is patient. He takes his time and waits for the right opportunity to come along. A novice might run out and snatch up the first home he sees, hiring expensive contractors to make repairs. An expert flipper makes as many of the repairs as possible himself. Lastly, a newbie flipper might hire an agent to help him sell the house, while a professional flipper takes advantage of the lower cost for-sale-by-owner option.
If you’re thinking that flipping houses is right for you, be sure you consider the five pitfalls above to be sure you know what you’re getting into.
This blog sponsored by Property Spark.