Over the past several years, viewers have been captivated by TV shows portraying real estate investors as they “flip” homes—or buy properties in generally poor condition, complete a seemingly quick and easy renovation, and then sell the home at a profit. These shows have inspired numerous people to try their hand at flipping houses. However, in the interest of time and viewer interest, TV shows gloss over many of the realities of house flipping.
If you are considering buying a home with the goal of renovating it and selling it for more than you paid, here are a few common misconceptions to keep in mind:
Flipping houses is a great way to make easy money. Perpetuated by half-hour-long TV shows that typically end in a lucrative outcome for the investor, this is one of the most pervasive misconceptions about house flipping. While the potential for profit certainly exists, investors often encounter hurdles that cut into their bottom lines, sometimes causing them to lose money on a house. For example, a home may have costly defects that were not initially evident, the real estate market could decline before the home is sold, and as with any construction project, supplies and services may end up costing more than anticipated. Therefore, it is crucial to have a financial cushion and a realistic understanding of the potential costs involved in flipping a house. Investors should be prepared to negotiate aggressively at every opportunity, from the costs of contractors’ services to realtor’s fees.
It’s easy to find properties that will be good investments. In reality, many professional real estate investors spend thousands of dollars per month in advertising as a way to find homeowners who are willing and able to sell their homes quickly and at a reasonable price. In addition, investors must have extensive knowledge of available properties and the market conditions in their area. New investors are often advised to look at a minimum of 75-100 homes in order to gain a thorough enough understanding of the market to make a wise investment.
You have to be handy in order to flip a house. While being capable of handling some of the home’s construction on your own would save money, contracting expertise is not necessary for a successful flip. However, it is important to align yourself with a skilled and trustworthy team who will assist you in executing your vision for the property, respect your schedule, and perform the work at a fair price. In addition to contractors, it is essential to find a trusted realtor to help you re-sell the home quickly and profitably, as well as a knowledgeable attorney to ensure that there are no liens, deed restrictions, or other issues that could delay a sale.
All improvements will add value to the home. An improvement will not necessarily yield a positive return on investment just because it leaves the home better than it was before. The cost may be disproportionate to the neighborhood or current market conditions, or the improvement may simply not be something for which buyers will pay a premium. Working with an experienced realtor or other professionals who understand what buyers in your area typically seek will help to ensure that you only spend money on improvements that will pay off.