Mortgage California Blog

Pro’s and Con’s of Flipping Homes

September 10th, 2013

craftsman putting a woodPro’s and Con’s of Flipping Homes

We got a lot of positive feedback from our post on flipping homes, so we thought we’d dive in deeper with some of the pro’s and con’s and additional advice that we found.

Why Flip Houses

You may want to take a step back and ask yourself this very question. Why do you want to flip homes? If the answer is just “profit,” then you’ll be viewing which houses to buy through the lens of how much money you can make with an investment. If you enjoy fixing up homes, even so far as doing the labor yourself, this could be a good way of making money. Be careful to pay attention to details. For example, if you love custom cabinets but no other house in the neighborhood has them, you won’t get a solid return on your investment. You’d be better off hanging out your shingle as a custom cabinet maker rather then buying homes that need a facelift and reselling.

Your First Flip

The first flip you do will be a school of hard knocks. Look for a house that doesn’t need much so you can learn the process of getting permits, making simple updates and then reselling the home. The key is to not ask for much profit at this stage.

If you can make ten thousand or more on your flip after all expenses are paid (including taxes, realtors, and any fees) then you are doing exceptionally well.

This is also the time where you’re testing out your team to ensure you work well together, and that they have the skill level you need.

The Pro’s of Flipping

  • Potential profits that are large and relatively quick.
  • Being your own boss.
  • Getting to work with power tools.
  • It’s hands on with your blood, sweat and tears.
  • Putting together a powerhouse team that you can rely on.
  • Real estate markets are more predictable than investing in Wall Street.

The Con’s of Flipping

  • High risk.
  • No easy way out.
  • Large expenses.
  • Lots of physical labor.
  • Until you a lot of experience, your estimates will always be too low.
  • More complicated taxes.

Even More Negative Stuff

We don’t want to put a damper on things; however, it’s best to know as much as you can before you go in.

  1. The sheer volume of work, the time consumption, the sleepless nights and days, and the sometimes disgusting chores that must be done in order to get a run down property in sellable conditions is often glossed over on the television shows.
  2. Poor planning is common in the early days. You must carefully create a plan of action and implement that plan as quickly and cost effectively as possible. Also realize that there will be rain delays, mistakes, and major messes along the way. Proper planning can eliminate some of the disasters that may occur but it will not everything. Proper planning can also limit the impact to the overall time schedule and budget.
  3. Don’t skimp on inspections. Knowing the problems as well as potential problems that exist in a property can help you create a workable timetable and budget for the property flip. The television shows often leave out this step.
  4. Don’t forget the landscaping. Once the home is fixed up, you’ll need the exterior to look as nice as the home itself. Will you need to replace fencing? Convert any landscaping?

Next week, we’ll look at how to find and evaluate flippable properties.

Are you interested in trying to flip homes?

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