When you watch a house-flipping show on TV, it seems so simple that a monkey could do it, but house flipping takes a lot of knowledge, skill, and planning. If you’re thinking about getting into the business of flipping houses, here are a few things you should know before you quit your day job.
What is House Flipping?
In simple terms, flipping houses means buying a property that needs repair or updating and selling it for a higher price after you’ve made a few cosmetic repairs and other upgrades. It’s essential to keep in mind that flipping a house will require more than just a fresh coat of paint for you to make money.
Pros and Cons of House Flipping
Flipping houses is a risky business, but like most investments with risks, the payoffs can be huge. When you flip a property successfully, you can make a quick profit, unlike other investments that take years to turn a profit of equal value.
According to DealMachine, “One of the main reasons why people invest in real estate is to build wealth and equity to experience financial freedom.” Flipping houses is an excellent way to reach your financial goals, but you have to learn the business to be successful.
Another benefit of flipping houses is learning about the construction and real estate industry. Flipping houses will require you to learn about dealing with contractors, building permits and learn about DIY home repairs and real estate markets.
Like any other investment or business, flipping houses comes with a few cons. The biggest con to flipping houses is the risk of loss. When you select a house to flip, you run the risk of losing money.
Many first-time house flippers lose money due to unanticipated expenses, tax increases, and capital gains tax. You must become familiar with every aspect of buying and selling property before you decide to start flipping houses.
What you Should Know
Where you decide to flip houses is just as important as the property itself. The best cities for flipping houses should offer good population growth, a good median household income, a good home sale price, and other factors. Before you buy a home to flip, learn about the real estate market in the area, and develop a network of realtors, attorneys, building inspectors, and contractors.
Best Practices for Successful House Flipping
If the city you live in isn’t one of the best cities for flipping houses, consider flipping a house in a nearby city that offers greater potential for a successful flip. Location is a key ingredient to successful house flipping, and it’s important to choose a good city and neighborhood for your first flip.
If it’s not possible for you to flip your first home in a good city, choose the best neighborhood in your city that offers the most potential for success.
Don’t make the mistake of choosing the lowest-priced home on the market for your first flip.
If the home needs a lot of repairs and upgrades, you can end up spending too much money to get the home up to buyer standards. The more money you spend on repairs and upgrades, the higher you will have to set the selling price to make a profit or break even.
Flipping houses can be a very lucrative business, but it also comes with a lot of risks and stress. If you’re considering flipping houses as a business, start slow and learn everything you can about the real estate and construction business before you make your first purchase.