More and more people are investing in real estate. Not only does real estate present the opportunity to own a home, but you can make a lot of money off of it too! Many people flip homes for a living and love doing it. Looking to invest in real estate yourself? Here we will outline the pros and cons of flipping homes as another source of income.
THE PROS –
MAKE A QUICK PROFIT
The good thing about flipping homes is that you can flip and make a lump some of cash in a short amount of time, if done right. There will probably be times where there are many renovations to finish and it ends up being a project that takes longer than anticipated but with more simple flips and less complicated renovations, this is a great pro that encourages people to get into it.
LEARN MORE ABOUT REAL ESTATE AND THE PROCESS OF FLIPPING
Of course, since you’re in the business and actively experiencing the process, you will learn so much about flipping homes and real estate in general. You’ll learn the terms, know the steps to do it efficently, and know who to call for what issues. This insight will make you a better flipper and in turn, can make you more and cost you less.
BETTER UNDERSTANDING OF THE LOCAL MARKET
Before you purchase a property, you should always do some market research to make sure that you are making a good business decision. How much repair does it need? Are there similar homes on the market that will cost you less to spruce up? Is it decently priced? Understanding the local market will help you answer all of these questions (and don’t forget to confide in your real estate agent for these answers as well). But also, ask your realtor for helpful resources to learn and empower yourself throughout the process so that you will feel more confident in your purchase decisions.
INCREASE YOUR NETWORK
Just like we stated before, when you’re in the business, you will learn who to call for what issues. A list of some of the people that you will add to your network are local realtors, contractors, inspectors, lawyers, other investors, etc. It is vital that you network in any business, especially ones where you cannot get the job done without these professionals on hand.
Also, at the end of the day, one of the biggest pluses is having that pride and confidence that you can envision creating more value in a home and achieve the level of financial returns that you can when flipping real estate.
THE CONS –
UNANTICIPATED EXPENSES
Sure, you can make a grand budgeting plan, do everything by the book and even splurge on some things, and STILL have unanticipated costs and go overbudget. From things like building permits and maybe having to negotiate some things monetarily with the seller, and so much more, a lot of little things can eat into your bottom line, so make sure to budget for more than what you anticipate to offset some of the unexpected costs.
TAX INCREASES
So you revamp the home, put in new appliances, and make it look like it’s a new construction property. Because of this, the city can increase property taxes on that home, making it just a little bit harder to sell to the next person, or if you have to pay it yourself. The other thing is, you’ll have to pay capital gains tax on all of your property investments, but you can however, postpone it with a 1031-exchange. Make sure you do your research on tax laws and incentives for investors and house flippers.
STRESS
Just like anything you do for a living (or even part time), there is always the potential for stress. In this business, you will stress about finding the right property. With so many factors that go into making a good business investment, it can wear on you. There is also stress involved when you anticipate the costs, and the process itself. This includes making sure things come to life for your vision, to dealing with all the people involved, to finding the right buyer when it is all said and done. Make sure to have self-care in the process, plan accordingly, and get the right team to decrease moments of stress as much as possible.
HOLDING COSTS
The longer you hold the home, the more it costs you. Even with renovations, you still have to pay the mortgage, taxes, maintenance, etc. The longer you own it, the more it eats into profit, so work efficiently and renovate and sell as soon as possible!
