If you’re a cable television viewer, you’ve probably seen ads for programs that follow home buyers who are “flipping” houses. Perhaps you’ve even watched an episode or two. Flipping seems like a do-it-yourselfer’s dream: buy a property in need of a makeover, invest some time, money, and hard work in renovating it, and then turn around and sell it for a profit.
It’s important to realize, however, that house flipping involves a sizeable investment of money, time, skill, and knowledge of the market in which you’re planning to flip. And at the end of the day, the process is a gamble that could end in a poor result, depending on the vagaries of the local market, prevailing interest rates, and your ability to produce a home makeover that someone is willing to pay for. Let’s take a look at these investments and what you might expect when you decide to buy a home and flip it.
Money. While flipping a house may sound like a great way to put some extra money in your bank account, you have to make certain that you not only have the capital to swing a down payment and monthly mortgage payments while you are working on the house, but also a sizeable reserve of cash to handle your planned renovations – plus a cushion to handle unforeseen repairs. Many remodeling jobs look simple on paper but turn out to be much more complex and costly once the “bones” of a house are revealed. Are you prepared to handle a hidden electrical problem or plumbing issue? How much over your budget can you pay without taking the kind of financial hit that would render your flipping experience less-than-worthwhile?
Time. Renovations, no matter how small, take a certain amount of time. Whether you’re repainting cabinets or installing new flooring, you can expect that you’re going to have to spend quite a bit of your free time working on remodeling. If you are retired, semi-retired, or have a part-time job, maybe flipping a house is the perfect side job. But if you’re working 60 hours a week and returning home exhausted, you’d better think twice before taking on such a time-consuming project.
Skill. If you’re the kind of person who watches a lot of HGTV and can spend hours at the local home improvement store, then you might be cut out for flipping. Better yet if you possess any experience in do-it-yourself projects like carpentry, plumbing, or electrical work. But if you like the idea of remodeling but lack the necessary skill, you could be setting yourself up for failure – or at least for the costly need to hire a professional builder or contractor to do some of the heavy lifting, which could make a big dent in any profit you would hope to see upon resale.
Knowledge. If you know nothing about real estate, you’d better make sure to educate yourself before you decide to flip a house. The house you choose should be the right price in the right location. It’s vital to have a firm grasp of the local real estate market in which you plan to flip. Flipping is easier to accomplish in a seller’s market than a buyer’s market – do you know which way the wind is blowing in terms of an inventory glut or an inventory shortage? How much are comparable properties in the same area or neighborhood selling for? Can you reasonably expect that the market will remain in your favor during the time it takes to make your renovations? A bit of up-front research can help you to make a wise decision in terms of whether the conditions are right for a flip.
If you’re thinking about flipping a house to make some money, having a cash cushion, plenty of time, and a passion for home remodeling projects can certainly help you go far. But in order to truly make a house flip work in your favor, it’s most important that you understand whether the market conditions are ripe for a flip – or else that flip could turn into a flop.
Content courtesy of http://www.realtytimes.com
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