Is House Flipping a Good Investment?

by Lellith Garcia Finance Writer/Blogger

House flipping is one of the real estate investment option that you can consider. It has a quick investment return, which can only take from a few months to a year. However, before diving into this investment option, you must first consider the pros and cons involved in flipping property.

Advantages of House Flipping

1.            Potential to Earn Profit Quickly

House flipping can only take a few months if things go well, and the money invested can be recovered quickly. Many businesses or individuals who make house flipping an investment earn good returns.

2.            Building Connections

All business ventures require connections for the success of the company. And it is very helpful in flipping property to have vast connections, starting from contractors to real estate agents, builders, property managers, and attorneys. Having good connections among these people can help you find good deals and establish your name in the industry, especially if you are only starting. 

3.            Gaining Buyers Insights

By engaging in different transactions in the long run, you will better understand what your buyers are looking for. You can start planning and finding good deals in the area and transform into something that the neighborhood is looking for a house in that particular location. You can personalize it to fit the prospective buyers' tastes.

4.            Learning to Anticipate the Unexpected

Since you already experienced how a house flipping works; you can already anticipate unexpected expenses that are initially not part of your budget, allowing you to make more allowance for it. Also, not everything you plan works makes you more cautious and allows for your next projects' margin of errors.

 

Disadvantages of House Flipping

1.            Needs for Large Investment

House flipping requires a large sum of money to invest in, starting from buying the property, materials and labor costs, and the marketing costs. Adding into that are the holding costs if the property is not disposed of right away. Without having enough cash or loan to back-up, house flipping is hard to do. Besides, taking out loans to finance the project can amplify the risks for house flipping.

2.            Probability of Losing the Investment

Before you enter into property flipping, you must know the risk of losing the money if something goes wrong. Same with any investment, the risk is always present, which you need to face. House flipping is an investment where you can quickly gain profit but quickly lose it as well. Unanticipated expenses and significant issues can be challenging to handle and may even cost you a fortune to repair. It is vital to hire a competent house inspector to lessen this risk before signing the contract. It would help if you lessened the unexpected events as possible.

3.            Paying High Taxes

Since the property's purpose is to buy and sell it after some renovations, you only own the property for a short duration, subject to higher capital gain taxes. It significantly affects your profit. There is also a chance of increasing property taxes upon selling the property, increasing the deductions for the supposed earnings.

4.            Holding Costs

Once the renovation is done, it is not sure if you can find a buyer right away. You will incur additional costs to cover the interest (if you take out a loan), taxes, insurance, and maintenance. You may even lower the selling price to find a buyer to avoid these costs.

 

Making an informed decision and thinking of the pros and cons before investing in house flipping can help decide if this is for you. If the advantages outweigh the disadvantages, then you can have a go with flipping property.

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Created on Jan 27th 2021 21:12. Viewed 397 times.

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