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The Ups and Downs of Flipping Houses

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One real estate investment strategy that is gaining traction in the form of Internet advertising, motivational seminars by self-appointed experts – and even flyers on telephone poles in parts of town that are undergoing gentrification. What you won’t always hear from these sources is the amount of sweat equity that goes into the process. If you’re not a big-budget investor with the money to have a labor crew to go in and fix up the properties you want to flip, you have to prepare to do it yourself, or take the costs out of your margins. So before you jump into this investment craze, let’s take a look at the pluses and the minuses.

The Advantages

Sure, you can make a solid profit. If you find a home in a part of town that is on the rise, in terms of real estate value, and you can turn the house from a clunker into an updated masterpiece, then you can make a ton of money when you put it back on the market. Individuals and companies that have the scale to do this on a full-time basis can make money hand over fist.

You also beautify a neighborhood when you flip a home. A lot of flipped properties start out as aging pieces of real estate, showing signs of considerable wear and tear, but then they emerge ready to take on forty or fifty more years. When homes get that facelift, the whole neighborhood feels better – and so do the other people living in it.

You can learn how to manage the renovation process. Are you managing the whole “flip” project yourself? Then you’re going to learn everything there is to know about what it takes – in some cases doing an entire overhaul of the kitchen and bathrooms, and in other cases even replacing interior drywall, exterior siding and the roofing. You’ll also learn how to negotiate pricing, how to delegate tasks and how to get multiple processes finished within as small a window of time as possible.

The Disadvantages

Any investment involves some degree of risk. A profit is definitely possible, but it’s also possible that you will lose a lot of money. Let’s say you purchase one of these depressed properties at an auction, or through a foreclosure sale. You don’t have enough time to run your due diligence with a thorough home inspection, which means that a whole world of troubles can lurk behind walls – black mold, termites, wiring that doesn’t meet code, hidden plumbing issues. That can send your overhead through the roof – and take your profits away. If the market doesn’t go the way you think it will, that can eat away at your profits too.

These possible drawbacks can create a great deal of stress. As an individual investor, if you’re flipping one home at a time, you’re putting a ton of time and money into renovations and then waiting for the house to sell so you get your money back. The more houses you flip, the savvier you’ll get about the whole process, but at least initially, there will be a lot of hiccups.

Still thinking about flipping?

You’re going to need a lot of money up front, either your own savings or financing that you arrange from a lender. You can’t have too much money in a savings account when you get started, because the expenses that you incur between buying the house and selling it will have a major impact on your bottom line.

This isn’t to say that you can’t succeed with flipping homes. After all, a lot of people do it, and they do quite well at it. However, you need to know that it’s not as easy as those people traveling around delivering “flipping” seminars say that it is. Find a mentor who has actual experience making money in this type of investment, and don’t be afraid to ask for help when you need it.

In some cases, there are credit, income, and other criteria that some investors cannot satisfy with traditional bank lenders. Talk alternative & private mortgages with Amansad Financial about private lending options that may be available that you are unaware of.

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Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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