Is Flipping Houses A Bad Idea or Not?
Any potential real estate investor at some point will ask themselves the question, Is flipping houses a bad idea? The risk of losing money, time, and potential opportunities is much higher than those who invest in homes already prepared ahead of time, but it all depends on how you plan your investments.
Home renovation shows typically show a “reality” that makes house flipping achievable, comfortable, and, most of all, luxurious. However, those shows don’t show the back-burner of the process, and for potential investors looking into flipping homes, they need all the details of the project before even getting started. Reality TV shows only aim to show what buyers want to see and give the buyer the illusion of grand home renovations so they can potentially invest in purchasing a new home. But as the investor, you need the gritty, hard financial details, and need to make amends for any mishaps or falter throughout your home renovation project.
The Myths and Risks of House Flipping
House flipping for any experienced investor sounds like a sweet deal because newly renovated homes give off the illusion of confidence for the buyer, possibly convincing them to pay a higher price for a newly remodeled house. New plumbing systems, refurnished walls and doorways, and other significant repairs to the home can make or break an investor, especially considering the home’s history and current condition. So, what should you, as the investor, be aware of when thinking of house flipping? Here are a few myths and rookie mistakes that many make when flipping homes:
Expecting Under Budget Expenses – Reality TV shows typically state at the end of each project how they were able to work under budget to complete the renovation, but in actual reality, that’s not always the case. House renovations typically come at or just over the initial budget, and that’s after investors took the time to estimate a budget and time for completing the project.
An estimated budget should consider the potentials for mishaps, such as the entire heating system needing new circuitry, the sewage system overlapping into the home’s well-water supply, or the oncoming of asbestos-related products in the house. All these risks come at extra costs, and many shows don’t show what happens when these kinds of mistakes happen or what the investors have to do about them.
Projecting a Shorter Time Estimate For Flipping – Flipping homes takes a lot longer than a few weeks. Any contractors that you hire for your renovations will most likely be working on multiple jobs at once and usually won’t deal with hard deadlines, as you see in most shows. Flipping houses consumes time. The simplest tasks that expect to be done within a few hours can take up a whole day, and as an investor, you’re continually dealing with the project almost 24/7. Flipping houses takes, on average, six months to a year to complete.
Flashy Furnishings Equals Profits – Just because a home looks flashy doesn’t make it profitable either. The changes you make to the house have an impact because the home needs to sell to have a return of profit. High-end furnishing can make for higher payments for the homeowners or landlords, and the area in which you choose to have your home renovation will also contribute to the costs of the home. If you’re focusing on getting rich quick, then you have to think about what the buyer’s looking for, even if it means just making simple repairs.
Assuming Flipping Comes With Lower Tax Rates – Short-term capital gain rates can be much higher than long-term rates. Higher tax bills can be raised as high as 40% or more, depending on your income. Even while the occupants of the home are not living there anymore, the fees to keep the house afloat must still be paid, also while you’re putting money in refurbishing the home to sell it. This factor especially becomes prominent when you’ve only owned the property for less than a year.
Flipping Gives A Consistent Income? – Flipping houses requires a significant amount of giving to gain your final reward. The opportunity costs of flipping houses make it an active venture, which means flipping needs to be a constant activity that takes time and dedication to each project. Income needs to manage on a day-to-day basis, and with flipping homes, investors lose more before gaining more in the end.
Reality TV shows don’t show where the investors are getting their income, which tends to give people interested in investing a rosy-tinted viewpoint of flipping houses. Flipping houses takes a lot of capital, which most people don’t have, making finding the money hard to attain. However, if you’re dedicated to your project, and you’re in search of a house flipping loan, then contact us at Neal Business Funding about our real estate loans.
Flipping Houses is Easy – It’s stressful and fills investors with anxiety because even the most laid out plans and detailed budgets can’t prepare for surprises. While you see the hosts of your favorite flipping TV show smiling with confidence, many investors, in reality, tend to stress and worry about their investments, because flipping houses is a business that needs constant care and attention. It’s a roller coaster with highs and lows, and surprises can come around the corner and lead to even more money out of your pocket. Finding the right house, in this case, matters, because while the surface may look profitable, you could potentially end up in the dumps of financial debt and stuck with an unsaleable home.
Even if these reasons don’t scare you off, you should know that flipping houses aren’t the only way investors can make a profit. Rentals also provide different strategies with their benefits and disadvantages. But what’s the difference between flipping and renting? What do rentals offer that flipping doesn’t and vise versa? Both flipping and rentals have taken on unique approaches to capital and profits, and