REAL ESTATE WATCH: Flops to Avoid While Flipping Houses
By Space Coast Daily // February 27, 2018
flipping is a strategy where you purchase a property with the intention of reselling it at a profit
Property developments such as those Vision One Projects handles can seem overwhelming for a beginner. If you’re looking to get into property development and investment, flipping homes could be a great place to start.
Sometimes called wholesale real estate investments, flipping is a strategy where you purchase a property with the intention of reselling it at a profit.
In this kind of real estate investment strategy, you generate profits from price appreciation from capital improvements you make or an improved market – or both.
In short, house flipping is all about purchasing low and selling high – much like any other investments you make.
However, you need to sell as soon as possible because each day you are holding on to the property, it is costing you money in terms of insurance, utilities, mortgages, and property taxes. House flipping is a great investment opportunity, but there are certain things that can bring down this rewarding venture.
Lack of Time
Renovating and flipping a property is a time intensive venture that may take you months to find that “perfect” property to buy. When you find the house, you need to invest in fixing it, scheduling inspections, and probably spending more time and money to ensure it’s up to building codes.
Next, you need to sell the property, which involves meetings with prospective buyers and shuffling between your investment and meetings.
Is it worth all the hustle for just 10 percent net profit? For some, it’s better to stay at a day job where they are assured of earning the same money within a few months or weeks thanks to a steady paycheck – without the risk and time commitment.
Lack of Real Estate Knowledge
Success depends on picking the right property, at an optimum location and at the right price. In neighborhoods with $150,000 houses, you cannot expect to purchase one at $80,000 and sell it at $300,000. This very unlikely situation will not occur frequently – if it ever does.
Even if you manage to land the deal of a lifetime and purchase the home for a song, you have to know what renovations can be carried out and which ones to skip.
Plus, you need to have a practical understanding of related tax laws as well as zoning laws. You also need to have a working knowledge on what you should do to reduce losses and get out in case a project is a potential money pit.
Lack of Capital
One of the first major expenses you will incur as you dabble in real estate is the acquisition cost – even finding a legitimate low or no money down lender is a problem.
In addition, as you finance a property, you need to pay interest and every dollar you spend here is an amount you require for a sale to break even. Researching the different financing options available will help you determine what type of mortgage suits your requirements, as well as find a lender willing to offer you lower interest rates.
If you pay cash, you eliminate any interest costs; however, you still have to deal with utilities, taxes and other property holding costs. You also have to factor in costs that go towards fixing the house, and the final sale price ought to be higher than the cost of purchase combined with property-holding cost and renovations. Once the sale is done, you also need to consider capital gains tax, which might take a piece of your profit.
Overall, approach your house-flipping venture like any other business. Like other enterprises, this also requires money, time, patience, planning, research and skill. As you step into the industry, the going might be tougher than you had envisioned when you started out.
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