Things to consider if you're looking into flipping houses
With renovations underway on our flip house dubbed "Project Elizabeth," we thought it would be good to take a step back and explain the process that goes into flipping houses.
It looks easy, but it only looks that way on TV
People underestimate the work that goes into flipping a home. A few cosmetic touch-ups, paint, put it back on the market then make a huge profit? Not necessarily.
Flipping homes requires knowledge, planning, and savviness to be successful. Common mistakes early investors make are underestimating the time and money the project will require.
Sufficient funds for the project
Real Estate is expensive. Everything from property acquisition cost to financing the project and in between will be start-up costs before the first nail is pressed down in the home.
If you're financing the house, you're paying interest. The interest is tax-deductible after the passage of the Tax Cuts and Jobs Act, but it is not 100% deductible, so every dollar spent on interest adds to the amount you'll need to earn on the sale just to break even. Throw in an unexpected problem it can quickly chip away at your profit.
Having enough time
Flipping homes is a time-consuming venture. It takes time to find the right property. Once you buy the property, you'll need to invest time to fix it up. If you have a day job, you can say goodbye to evenings and weekends. Hiring contractors will streamline the process, but for a pretty penny and supervising the work done to the house.
Once the work is done, you'll need to get the house inspected to make sure it complies with applicable building codes before you can sell it. Next comes to time investment it takes to sell the property. You will find yourself driving frequently to meet with potential buyers, for someone with a day job, this may cut again into evenings and weekends.
The right skills and expertise
Professional builders, such as carpenters and plumbers often flip houses as a side income to their regular jobs. They have the knowledge, skills, and experience to find and fix a home. This is known as "sweat equity."
If you're handy with a hammer, enjoy laying carpet, hang drywall, and roof a house -- you've got the skills to flip a house. If you lack the handyman skills to do it yourself, it's better to hire a contractor. Keep in mind this will reduce the odds of making a substantial profit on your investment.
Knowledge of the location and price
In a neighborhood of $100,000 homes, do you expect to buy at $60,000 and sell at $200,000? the market is far too efficient for that to occur regularly. In addition, there are applicable sales tax and zoning laws.
Zillow and other big-league lenders are now flipping homes in select markets. With this in mind, it seems everyone, big or small, is seeking a part of the action.
The bottom line
If you are thinking about flipping a house, take into consideration the risks involved. Anyone can underestimate the time or money required and often overestimate their skills and knowledge. Making a nice profit quickly by flipping a home is not as easy as it looks on TV.
Post a Comment