With all the reality TV shows about house flipping, it’s no surprise that it’s become increasingly popular, accounting for 10.9 percent of home sales as of the fourth quarter of 2018 according to a report by Core Logic.
If you’re thinking about flipping a house, it’s important to understand the risks and benefits to determine if it might be worth your time.
Making money is the most obvious reason people flip houses – for some, it’s even a full-time business. It has the potential for a significant return on your investment, and, if the scenario is right, it can happen relatively quickly. But the key here is the right scenario. And, even if it is right, there is no 100% guarantee that you’ll be able to sell high, actually getting the amount that shows up on a home selling calculator after you’ve put a ton of time and money into a property.
When you buy any asset with the intention of making money by selling it, that’s speculating, not investing, similar to buying art and other collectibles or investing in the stock market, which means it’s a gamble. If you have to take out a loan to buy that house rather than paying cash, it becomes even riskier as you’ll have to pay higher closing costs and interest on the loan while you’re making the necessary repairs and/or upgrades.
Lots of Time and Effort
While you can influence the price of your investment by making improvements to the home, perhaps repainting, installing new cabinets and appliances, sprucing up the landscaping and so on, you’ll have to either do it yourself or pay someone else to do it which means less profit. Flipping houses is incredibly time-consuming as it always takes longer than expected, and rarely does everything work out just like it was planned. You’ll probably make mistakes and miss deadlines, especially without any experience.
An Emotional Business
Flipping houses is an emotional business for many as most people begin making decisions based on what they’d like to have in a home. To make a profit, however, you’ll have to battle that feeling, purchasing affordable and decent looking features rather than buying, for example, high-end countertops and fixtures that you love.
If you do have the time and money there are some benefits to flipping houses that might not have occurred to you, including valuable experience. You’ll improve your negotiating and time management skills as well as learn a lot about real estate and construction. It can also be rewarding to renovate and sell a home, helping to improve a family’s quality of life and perhaps the look of the neighborhood it’s in.