Being a house flipper appears to be quite simple! Purchase a home, make a few aesthetic improvements, and resell it for a hefty profit. A half-dozen television shows showcase good-looking, well-dressed investors who make the process appear fast, enjoyable, and rewarding at any given time.
Also, a lot of houses are being flipped. According to ATTOM Data Solutions’ 2019 U.S. Home Flipping Report, flipped properties accounted for 6.2 percent of all home sales in the United States in 2019, an eight-year high.
What is the Process of House Flipping?
Flipping (also referred to as wholesale real estate investing) is a real estate investment technique in which an investor purchases a home to resell it for a profit rather than live in it.
This profit is usually earned through price appreciation possible in a hot real estate market with fast-rising prices or from capital upgrades made to the property—or both. For instance, an investor can choose to buy a fixer-upper in a “trendy” area, refurbish it extensively, and then resell it at a price justified by its new appearance and amenities.
Top 5 Must-Haves for House Flipping
These ventures, like any other small business, will consume time, money, work, and patience, as well as expertise. It will almost certainly be difficult and costly than you anticipated. Take it lightly at your peril: If you’re only hoping to make a fast buck by flipping a house, you can wind up with empty bank accounts. If you’re considering flipping a property, avoid these five blunders:
1. Insufficient Funds
It is costly to dabble in real estate. Naturally, your first expense will be the cost of purchasing the property. While boasts of no-money-down financing overflow, locating these deals from a reputable lender is tough. You’ll also have to pay interest if you’re financing the purchase.
Even after the enactment of the Tax Cuts and Jobs Act, interest on borrowed money is still deductible, although it is no longer a 100 percent deduction.
Every dollar you spend on interest increases the amount of money you’ll need to make on the sale just to make it even. If you finance your flip-house purchase with a mortgage or a home equity line of credit (HELOC), only the interest is deductible. Your payment’s principal, taxes, and insurance are not included.
2. Insufficient Time
Renovating and flipping residences takes a lot of time. Finding and purchasing the ideal home might take months. After getting the property, you’ll have to dedicate time to repair it. If you have a day job, demolition and construction will surely take up your nights and weekends. You’ll still spend more time than you expect managing the task if you hire someone else to perform it, and the price of hiring others will diminish your profit.
3. Inadequate Abilities
House flipping is a side business for professional builders and skilled specialists such as carpenters and plumbers. They have the abilities, expertise, and experience to locate and repair a home. While they focus on their side projects, some have union jobs that supply them with unemployment checks throughout the winter.
Sweat equity is where the real money lies in house flipping. You can flip a house if you’re good with a hammer, love installing carpet, and can hang drywall, roof a house, and install a kitchen sink.
4. Insufficient Knowledge
You must know how to choose the property, in the right location, at the right price to be successful. Do you expect to purchase at $60,000 and sell at $200,000 in a community with $100,000 homes?
Even if you get a once-in-a-lifetime deal—say, snatching up a foreclosed home for a song—knowing which upgrades to do and which to forego is crucial. You must also be aware of applicable tax and zoning requirements, as well as when to cut your losses and exit before your project turns into a money hole.
5. Inadequate Patience
Specialists dedicate time and look for the most suitable property. Whereas beginners rush out to purchase the first property they can get their hands on. After that, they hire the first contractor, who is there with a quote for the work they can’t perform themselves. Professionals can conduct the work themselves or use a pre-arranged network of dependable contractors.
First-time sellers usually hire a realtor to assist with the sale of the home. To cut costs and increase earnings, professionals depend on “for sale by owner” activities. They recognize that purchasing and selling homes takes time and that profit margins might be below.
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