Flip this House and similar shows make hose flipping look so easy and profitable, don’t they? I’m sure you’ve watched those TV shows that turn those ugly duckling houses into beautiful swans with golden eggs, or in this case dollar signs. You’ve probably considered the idea of making a nice profit by flipping houses.
If you’re seriously considering flipping houses, you must be educate yourself to minimize risks and maximize the time and money invested.
The process of buying a real estate property and, quickly soon after, selling it (after making modest improvements) at an appreciable profit is called house flipping.
House flipping can be a great way to turn a rather large profit in a relatively short amount of time. However, like many investments, house flipping can also come with a giant financial risk.
An inability to sell the property that is being flipped is probably the worst fear of every property investor who engages in this sort of investment.
For example, it is getting harder to sell properties now that the real estate market is cooling off. It is hard to imagine the consequences of investing quite a bit of money on a home, only to have it sit on the market for months or years.
Worst case scenario in this situation like this is that you are forced to either absorb the loss, which can in extreme cases result in serious financial hardship or bankruptcy. You could also rent the property out, which could in most cases negate all the efforts that were made to rehab the property. Finally, you yourself could live in the home until the market starts to pick up.
Another risk of house flipping is seriously underestimating the amount of money that will be required in order to upgrade the home. Most people have unrealistic expectations of exactly how far their dollars will go when it comes to investing in the materials and labor needed to properly rehab a property. Even minor cosmetic repairs throughout a house can easily run into several thousands of dollars in order to repair. On the flip side is that once these repairs are made the potential profits run into several tens of thousands of dollars.
One risk that isn’t often considered is the risk of overestimating abilities. Many first time investors try to cut costs by doing the work themselves. Unless you have experience in construction, this is one mistake can cost you time, money, and materials. When in doubt, it is almost always best to hire professionals to do most of the labor.
How you can limit the risk of house flipping.
Understand that there is no such thing as a risk free investment opportunity, especially when it comes to real estate.
Before investing in a home, hire a qualified property inspection to assess damages and repair costs. This is the most important first step. You do not want to be faced with costly surprises such as foundation repair or mold removal later down the road.
Create a plan of action for the house flipping process. This plan needs to be complete and include an estimated budget for the specific property in mind, the estimated value (for the area) once the repairs have been made, and a realistic timeline for the completion of the project.
Many experts recommend that you spend the bulk of your budget on the kitchen and bathrooms. These rooms are your moneymakers when you flip houses. At the same time, avoid taking unnecessary risks by crafting a kitchen or bathroom that has too many upgrades. This could drive up the final cost of the home, making it hard to sell.
Take the amount of money you have set aside in the budget for repairs and double (or triple) that figure. This will give you a more realistic potential profit figure. In your budget, don’t forget things like tax, realtor fees, and other costs.
Remember, as with all investments, the key here is to ‘Buy Low and Sell High’. Your best investment for house flipping are foreclosed homes.
House foreclosures are at an all time high, which means that the market has suddenly been saturated with properties for sale. Since this is a buyers market, you have the potential of purchasing a home up for foreclosure at a great deal.
To find foreclosures in your area, try doing a search at InvestingForeclosures.com.