Flipping a property can act as a great form of investment- if everything goes right. However, while it is a quick means of earning, it is also a very risky one. If you are considering real estate flipping- you might want to understand all the pros and cons that come with it.
Talking to financial advisors and real estate experts, we have compiled a list of the nine main pros and cons you need to know about before you begin.
“No matter how effectively you manage stress, flipping a house can quickly drive you insane! There are a lot of risks involved, as well as a lot of money on the line. If you've borrowed money, this can be significantly more stressful, and a lot of little things can go wrong along the process. Delays in the building can have a cascading impact, and the expectation of having to wait to sell can be a major source of anxiety. So, before making a decision, carefully evaluate all of these factors.”
Adam Garcia, Founder of The Stock Dork
“There's no better way to learn and gain experience than to get trapped and put your neck on the line. You can learn about general real estate, your local market, construction and remodeling, bargaining, and buyer insights while flipping a house. This is a great method to get ready to sell, renovate, or perhaps create your own home in the future. You may not need to rely on third parties as much in the future as a result of the useful insights you'll gain, which will save you money.”
Sep Niakan, Managing Broker, Condoblackbook
“It can allow investors to turn significant profits relatively quickly. Unlike other forms of real estate investments, which immobilize the capital for several years at least, flipping is a fairly short process (less than a year in most cases), so investors can use the funds to start a new venture, finance other projects, or buy a new property to flip. It offers more flexibility to adapt to the investors' lifestyle.
“For example, some may choose to make a full-time career out of it, while others pick and choose projects. If you are just getting started in real estate, flipping a house is a crash course in all aspects of the business, from the real estate transaction itself to dealing with other professionals and expanding your network. Finally, it is always rewarding to see the transformation.” (Omer Reiner)
“However, flipping real estate can also be risky. It requires an excellent understanding of real estate, including the local real estate market (identifying a good deal and predicting what the property will be worth once fixed up), the construction industry, etc. It can be very stressful at the moment as property prices and construction costs are on the rise due to the cost of labor and shortage of material.
“Flipping means dealing with a lot of uncertainty: there is always a chance that you will uncover major damages throughout the process and the project will be delayed. You also never know if the market will turn.”
Omer Reiner is a Licensed Realtor & president of FL Cash Home Buyers, LLC.
“The more time you own the property, the more money you lose. Even when the renovations are finished, you will be responsible for paying the mortgage (if you have one), taxes, and insurance on the property for as long as you own it. Additional maintenance charges, such as lawn care or snow removal, may be incurred. And the longer the house is on the market, the more likely it is that you will have to lower the price, reducing any anticipated profit.”
Tommy Gallagher, Founder of Top Mobile Banks
“There is no benefit without some level of risk. You can make a lot of money rapidly, but you can also lose a lot of money soon. Auctions and foreclosures are two of the best ways to buy houses for flipping. In cases like these, it's possible that you won't be able to conduct a thorough inspection and identify all of the problems ahead of time. It's a gamble.
“Even with careful foresight and preparation, unexpected costs could arise, and serious issues like cracked foundations, mold, asbestos, or the need for new plumbing could quickly reduce your earnings. Real estate market fluctuations might also cause problems. If you can't sell your house soon, you'll have to keep paying your mortgage. Holding costs are what they're called. You're losing money every day you keep the house after it's ready to market.”
Eric Carrell, Chief Marketing Advisor SurfShark
“Flipping houses can be a great way to make a sizable amount of money in a relatively short amount of time. It is also something that you can do in your spare time so it can be a great supplement to your regular income. There is also a level of satisfaction that comes with bringing an old house back to life and helping clean up an eyesore in the neighborhood.” (Nick Disney)
“One of the disadvantages of flipping houses as compared to something like investing in rental properties is that it does not provide a long-term solution to supplementing your income. Once you have completed the project, you have to find another project and start all over again or you will no longer have that income.” (Nick Disney)
“Another disadvantage is that you are usually buying a dilapidated property and with that comes a lot of risk. Many novice flippers miss major repair problems with a property because they are so focused on the potential upside. When you are flipping houses there is a lot of money at risk and you need to make sure you know what you are doing before you jump in looking for a big payday.”
Nick Disney is the owner of Sell My San Antonio House, and a real estate investor with a 10-year experience in flipping houses.