Flipping properties for profit is a new and often exciting trend for entrepreneurs. The prospect of purchasing a property and turning it around in a few weeks’ time for tens of thousands in profit has tempted more than a few business people. If you’re successful at it, it can be a long-lasting, entertaining, and lucrative business venture.
But there’s more to this process than meets the eye, and many entrepreneurs have been disappointed that their business investments weren’t as lucrative as they’d hoped. They got a bad property, didn’t have enough cash flow, or they failed to do their homework properly. Now, they’ve lost money that should have been a sure-fire investment, and they’re scrambling to pick up the pieces.
In short, flipping properties is a great business idea if you know what you’re doing. If not, you’re in for rude awakening when the ordeal totally flops. Before starting a house flipping business, there are a few things you should know.
You could buy a lemon
You often don’t need a lot of money to get started, which is a huge draw. You can use money from investors, private lenders, or even a conventional loan with a small down payment. This perk is tempting at the beginning, but if you don’t purchase the right property, your investor could lose a lot of their money, and you might be required to pay them back.
Watch out for common signs of a pitfall investment. If the bank thinks the home might be risky, you don’t know the area, the home is older, or the project is simply too big, you might be looking at serious financial distress.
Not all improvements will be profitable
You could walk into a property and envision high value potential with granite countertops, new windows, paint, carpet, and other updates. However, some updates are not worth the investment, and you’re more likely to lose money than gain it during this flipping process.
Research shows that the best improvements for a home’s value include minor updates to the kitchens, bathrooms, siding, front door, and windows. However, the location and other environmental factors may indicate that the profit potential lies in non-typical renovations. Talking to local real estate agents, contractors, and investors in your local neighborhood can guide you to make the right updates.
It’s not a solo project
You’re probably not a licensed contractor, real estate agent, or broker and you need all of these people on your team to successfully flip a property. You can probably handle a lot of the marketing and business planning, but it doesn’t hurt to get some help. Don’t try to start a house flipping business alone. Build a team that will support and promote your work.
A strong network of local real estate agents, contractors you can trust, accountants, and other knowledgeable workers can accelerate your ability to make a profit.
There may be zoning laws, fire code requirements, and other barriers to your plans
Outlining the plans for any remodel is just the beginning, and you’ll likely run into a number of unexpected costs along the way. You might open a wall to find mold or termites, requiring fumigation. Zoning laws might also prevent you from building a garage or adding to the property, which could require major changes to your plans.
Patience and flexibility are essential attributes for house flippers. You have to see the punches as an opportunity instead of a setback, and adapt your plans accordingly. Be flexible and realistic with plans and money, recognizing that things might change along the way.
You need a reliable source of funding in case of surprises
Just like any in business, an adequate savings account can help you handle unexpected costs and avoid shutting down your business. You can’t budget exactly for each project and hope that you don’t run into problems along the way. You’ll run out of cash, which could result in an unfinished project and no profit. Keep a few thousand dollars in an emergency fund to mitigate your risk of failure.
House flipping may not be enough to fully support you
Although the allure of high returns on each project seems adequate, house flippers may not make enough to sustain a living. Sometimes the returns are simply supplemental income because they’re not guaranteed. A lot of entrepreneurs who start a house flipping business play it safe and don’t put all their eggs in one basket.
Starting a successful flipping business means devoting all your extra time to shopping properties, comparing market values, carefully and meticulously overseeing the remodel, working the books, and marketing your finished properties. Know that it might not be enough to replace a full-time income in the beginning, and make a backup plan just in case.
You’ll spend a lot of time on this project
As mentioned in the previous section, be ready for the extra time commitment. You could spend several hours after work searching for properties, writing offers, helping with the construction, making plans, and negotiating with contractors. If you don’t have a lot of time to spare, it may not be the most lucrative venture for you.
After reading this list, you might be thinking that house flipping is too much work . If that’s the case, there are plenty of other start up ideas in which you can invest your time and money.
On the other hand, you may have read this list and thought that house flipping was right up your alley. If so, there’s no time like the present to get involved. As long as you know what you’re getting into, and you’re sure you can turn a profit, you’re ready for the startup commitment – and the resulting profits – that are ahead.
