Flipping a house simply means buying a property and reselling quickly for a profit. This is one of the smartest investment options around and it requires very minimal efforts.
It basically involves your money as well as an in-depth knowledge of land ownership and the buying and selling process, you are good to go.
House Flipping is often used to describe short-term real estate transactions where an asset is purchase with the intent of selling it for an immediate profit rather than holding on for long-term appreciation. It is the surest get-rich quick scheme in real estate.
However, it is important to know the pros and cons of flipping a house before you begin.
It is one of the riskiest form of investments you will ever find, but as is the case with most risky investments, the rewards can be great if everything goes according to plan, or it can become a horrible mistake if the plan goes awry.
Here are few things to consider.
Positives of Flipping a House
Flipping a house can reap very generous rewards. Here are some of the advantages.
1. Potential to Make a Quick Profit
The main reason people enter into a real estate flip is with the hope of making money quickly. If done correctly, a real estate flip can provide very large profits.
Imagine buying a plot of land in Roseberry Estate, Ibeju Lekki at the current promo price of 3.6million and getting to resell it few months down the line for as high as 6 – 7 million naira.
These returns can be achieved in a very short period of time, and in many cases in only a matter of months.
2. Gain Experience
Flipping a house can further your education in a variety of areas:
- Construction – Through repairing, renovating or remodeling a property, you will gain insight into aspects of construction. You will start to understand the costs of materials and various plumbing and electrical repairs. This construction experience will help you make more money on future projects because you’ll know how to best budget a deal.
- Local Market– You should always do your market research before actually purchasing the property. You should talk to Realtors in the area, browse ‘for sale’ ads and look at houses/lands that have recently sold. This should give you a good idea of what people are looking for in the area.
- Unanticipated Costs– You will learn to budget for unexpected costs such as building permits, construction delays, delays in delivery of materials, contractor disputes, and holding costs when you are unable to sell the property as quickly as you had hoped.
- Real Estate in General– Flipping a house will help increase your knowledge of the real estate industry in general. If you are buying your first short sale or foreclosure, you will learn the ins and outs of the process as well as various financing and refinancing options available to you.
3. Increase Your Network
While undertaking a flip, you will create many new contacts in the industry, including Realtors, lawyers, contractors, building inspectors, insurance brokers, and other investors. These contacts can come in handy for a future investment, so you must always remain professional during your dealings with these individuals.
4. Personal Pride in Having an Extraordinary Vision
Another advantage of a real estate flip is being able to see the potential in a property that few others can see. Knowing that you have the vision to create value in a home is a source of great personal pride, along with the ability to achieve financial returns that are far superior to most other investments available to the average person.
Drawbacks of Flipping a House
Along with the advantages of flipping a house, there are also risks involved. Here are the drawbacks of flipping a house.
1. Losing Money Instead of Making a Profit
The main problem with flipping a house is when a flip becomes a flop and you lose money. There are many factors which can contribute to this loss including:
- Unanticipated Expenses– This includes everything from building permits, contractor delays, material delays, permit delays, and renovations and materials you had not budgeted for. These expenses quickly add up and eat into any potential profit.
- Higher Taxes– Once you have completed renovations on the property, the city may increase your taxes. This will affect you if you have difficulty finding a buyer and have to pay the taxes yourself, or it can impact buyers who may rethink purchasing the property because of the higher tax bill.
- Holding Costs– Even after renovations are completed on the property, you will have to pay the mortgage (assuming you have a mortgage on the property), taxes and insurance on the property for as long as you own it. These costs take a large chunk out of the budget, and the longer you own the property, the more money you are losing.
- Difficulty Selling– You are losing money every day you are unable to find a buyer for your property. Because you must pay the holding costs on the property, the longer it takes to find a buyer, the more money you are losing. In addition, the longer the property sits on the market, the greater the likelihood that you will have to reduce the price, which will eat into any anticipated profit.
Stress is also a main drawback of a real estate flip. From finding the right property, properly anticipating the costs involved, dealing with contractors, Realtors and the town, trying to meet your deadlines and finding a potential buyer, stress is your constant companion when flipping a house.
I hope that now that you have been enlightened on the pros and cons of a property flip, you will be able to make an informed investment decision.