The risks and benefits of flipping houses

The risks and benefits of flipping houses

Many people watch one-hour shows on television on flipping houses and they reckon they can easily do the same and make a ton of money. However, if you have ever contemplated journeying into the world of flipping houses you need to be aware of the benefits as well as the setbacks. There are both significant advantages as well as major disadvantages that every investor should be aware of. Here is a guide to help you better understand the risks and benefits of flipping houses.

Flipping houses

Firstly, let us start by examining what exactly it means to flip a house. Simply put, flipping houses refers to the investment strategy of procuring property for quick resale. Under normal circumstances, your intentions as an investor are to sell your recently acquired property for a rapid profit. As such, rather than holding on to a property for rental income or long-term capital gains, you put a markup and quickly sell the property at a profit.

The premise of this investment strategy involves buying a rundown property at an amount below market value. The investor then has to carry out minor capital renovations and repairs on the property before selling it at or above market value. Your strategy on flipping houses can also include the purchase of property in a growth market. You then hold onto the house over the short-term before you resell it at a higher amount.

The benefits of flipping houses

1. Potential to make good profits

One of the biggest motivators for investors to undertake flipping houses is the potential to make huge profits. For the seasoned investors that know how to strategically and successfully flip houses, this is a lucrative investment opportunity. Under the right set of circumstances, you have the opportunity to make a significant return on your investment. In addition, flipping houses allows investors to achieve and enjoy relatively quick returns on investment.

2. Greater flexibility

House flipping is a great fit for investors that require greater flexibility. Moreover, you have a great amount of control over the process. In addition, you work for yourself and you are your own boss. You also have all of the decision-making powers. As such, there is a great degree of satisfaction in knowing that you chasing your own dreams and increasing your own wealth.

3. Personal development

Flipping houses requires a great deal of work and knowledge on various real estate issues. Thus undertaking investment in house flipping ventures will exponentially increase your knowledge on the real estate industry. In addition, there is a great deal of valuable experience to be gained from flipping houses. As the overall overseer of the entire project, you will sharpen your various management skills. From delegating tasks to time and resource management, you will significantly gain valuable experience.

4. Grow your network of contacts

Flipping houses will also give you the opportunity to make some great contacts along the way. You can significantly grow your network of contacts by working with lawyers, real estate agents, contractors, as well as inspectors. Such a network of professionals will always be beneficial in future investment opportunities.

The risks of flipping houses

Although there are a lot of benefits to flipping houses, there are also some risks and setbacks that you must be aware of. Inasmuch as there is a great deal of potential in house flipping, there is also great risk involved. Here are some of the things to keep in mind;

1. Potential to lose money

Although you have the potential to make a lot of money quickly, you can also lose it just as quickly. In some cases, there is a great degree of uncertainty over the issues that a property will have. This is especially the case for properties that are bought through auctions and foreclosures. Needless to say, this uncertainty can lead to you buying a property that has too many issues to fix, this can quickly eat into your profit margin. Other variables that could have an impact on your ability to make money include shifts in the market, inability to offload the property, as well as unanticipated expenses.

2. Unanticipated expenses

Anyone that has undertaken a construction or a renovation project will tell you that there are always unanticipated expenses. These expenses can quickly add up and be a thorn in your flesh, adversely affecting your ability to make a profit. These expenses can come in the form of contractor or material delays. In addition, a shift in currency rates can lead to increased local currency prices for materials. This will subsequently lead to you having to spend more than what you had budgeted for.

3. Expensive

Housing flipping is relatively expensive and requires a great deal of capital investment. As such, successful house flipping requires careful planning, discipline and timely execution of your strategy.

4. Holding costs

For as long as you still own the property you will continue to pay a mortgage on the property, assuming you acquired it with the aid of a mortgage. In addition, you will also have to pay insurance on the property, as well as associated taxes. All these costs can add up and take a huge bite out of your budget.

When it comes to the investment opportunities at your disposal, flipping property is quite risky. As with all risky investment opportunities, the rewards can be quite substantial. You need to fully comprehend the pros and cons of house flipping before you get involved. Thus it is very important to seek professional assistance to ascertain if this is the right type of investment for you.

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