Did you know that the gross returns for flippers were at the highest level in 20 years in 2020?
While the housing market was incredibly hot in 2020, with record home sales and prices, people flipping investment property were also cashing in on the boom.
Have you been thinking about flipping houses but aren’t sure if it’s the right thing for you?
Let’s take a look at the pros and cons of flipping real estate so you can make an informed decision.
The Pros of Flipping Investment Property
There are a lot of compelling reasons why people start flipping houses. First, let’s take a look at the benefits of flipping real estate.
Make a Quick Profit
One reason that flipping real estate has become so popular is because of the potential to make a quick profit. When done successfully, very large profits can result from a real estate flip. In fact, people can commonly make more than the US median salary from one property.
In many instances, people are able to see these returns in a very short period of time. Sometimes they make these profits in only a few months.
Gain Knowledge About Construction
You will learn a lot about construction through repairing, remodeling, or renovating a property.
The cost of materials and various electrical and plumbing repairs will be something you start to understand. You will learn how to spot major issues such as environmental hazards or structural problems.
Through this process, you also learn to budget for unexpected costs that might pop up. These might include construction delays, material delays, building permits, contractor disputes, and potential holding costs.
Learn About the Local Market
Before purchasing a property you should always do market research. You’ll want to become familiar with houses that have recently sold and houses currently on the market. You also want to talk to local realtors.
Learning about the local market can be valuable information to have. Not only can it help you make better choices when flipping houses, but also can help you make better financial decisions when it comes to your own home in the area.
Learn About Real Estate
Your knowledge of the real estate industry, in general, will increase when you start flipping investment property. You will learn the ins and outs of financing, refinancing, and maybe even purchasing foreclosure or short sale properties.
Increase Your Network
You will build any new contacts in the real estate industry when you start flipping houses. This can include contractors, realtors, attorneys, insurance brokers, and building inspectors. Having these contacts can be very helpful for your own personal property or for future investment property.
Develop Buyer Insight
Flipping your first house will likely be the hardest. This is because of the learning curve that comes with the territory. You will start learning right away what buyers in the area are looking for to help you become even more successful in the future.
A Rewarding Experience
Lastly, it can be incredibly rewarding to take a rundown property and transform it into a desirable home. It can be a great source of personal pride to know that you have the vision to see the potential in a home and to make it happen. You’ll also be able to pat yourself on the back for achieving financial returns that are often much greater than most other investments you can make.
The Cons of Flipping Investment Property
There are also risks involved when it comes to flipping houses. It’s important to understand the drawbacks of flipping investment property before beginning.
Risk of Loss
Probably the biggest issue with flipping properties is when you lose money instead of making it. There are a number of different factors that can contribute to a house flipping becoming a flop.
Tax Increases
The city can increase your property taxes after you have completed your renovation. If you have a hard time finding a buyer then you will have to pay these taxes yourself. It can also make the property less appealing to buyers who don’t want to foot the tax bill.
Capital Gains Tax
you’ll want to learn about capital gains tax before buying an investment property. Depending on how long you’re going to property, your profit might be subject to capital gains tax.
Unanticipated Expenses
There are a number of unanticipated expenses that can come along with flipping houses. These might be contacted delays, building permits, or seller concessions to your buyer.
Holding Costs
There are costs to holding a property including the mortgage, taxes, insurance, and maintenance costs. If you have a hard time selling or the renovations take longer than you thought, this can eat into your expected profit.
Stress
Lastly, it’s important to note that flipping a house can be stressful. There are a lot of moving parts when it comes to buying property and renovating property. Things like poorly anticipating costs, trying to meet deadlines, dealing with local ordinances and local contractors, and finding a buyer can contribute to stress.
Flipping Houses: Is It the Right Type of Investment For You?
Flipping investment property is something that can offer an impressive return on investment when done right. For some people, flipping houses is an incredibly lucrative investment opportunity or perhaps even they have made it their day job.
On the other hand, there are certainly risks involved when you choose to flip investment property. Understanding what can go wrong is important in helping you make the right decision for you.
Are you wondering what kind of lending options there are for real estate investors? To start the loan process today, you can start your application here.
