The reality real estate network HGTV is one of the most popular channels on cable and satellite television. People especially love the shows about flipping houses. When someone can take a dirt-cheap, broken down house and turn it into a beautiful family home, it’s amazing. The return on investment is also incredibly appealing, particularly for business-minded individuals.
However, house flipping may not be all it’s cracked up to be. When watching the show Flip or Flop, you rarely – if ever – see their investment flop, which makes it seem like it’s an easy way to make tens of thousands in just a few weeks. But the reality of house flipping is that it doesn’t always pan out.
If you’re considering starting a house flipping business, go into it with eyes wide open. Here are some of the positives and negatives of the biz.
You can make a lot of money flipping a house.
When you make a profit on house flipping, the average is about $30,000 per home. It’s a nice sum, but not as much as they advertise on television. If you’re really good at what you do and get lucky, you could make a profit of about $100,000, but recognize that this is not a common occurrence.
Turning a profit is not as easy as it looks. “While you can make a lot of money flipping homes, it takes hard work, education about the costs, and money,” says Mark Ferguson, a seasoned real estate investor who has flipped more than 120 homes both successfully and unsuccessfully. “The television shows can make flipping look easy, but they leave out many of the most important parts of the business. I average about $30,000 in profit on each flip I do.”
The profits are incredibly tempting, but remember that they’ll be out of your reach if you don’t have the experience and knowledge to back it up.
You can also lose a lot of money flipping a house.
You may not make money on every house. RealtyTrac research revealed that 12 percent of flips either sold at the break-even price or included losses. What’s more, 28 percent find that their profit is less than 20 percent of the original purchase price, which is low enough that it’s not worth the time and effort.
“[The TV shows] showcase that real estate is an extraordinary investment deal,” explains Eric Workman, vice president of Renovo Financial, a residential real estate investment lender. “It is possible to buy a property that is under value, put renovation dollars into it, sell it for a higher price, and make a good profit. If you do it enough, you can make a good living out of it. But you sit down and watch and it’s 30 minutes [long]. You feel they made $50,000 in 30 minutes. And that project might have taken eight months.”
Don’t get so caught up in the glamor of flipping house that you miss the reality of the situation.
Be prepared for a lot of stress and drama.
The stress and drama of house flipping is one aspect of house flipping on TV that’s accurate.
When pouring a lot of money into a real estate investment that you’re not entirely sure will pan out, stress is a natural reflex. There will also be drama, whether it’s mold in the walls or zoning laws that prevent a portion of your renovation.
If you don’t have patience and a positive attitude, house flipping may not be for you. There will be plenty of mistakes and concerns that will throw you for a loop, and if you’re not sure you can keep your cool throughout, it might not be worth the mental toll.
Flipping isn’t successful in every housing market.
Not all markets can sustain house flipping. In areas that are particularly poor or where there’s little demand for housing, you’ll have a hard time selling your upscale property after you’ve finished it.
Ingo Winzer, CEO for Local Market Monitor, told Forbes that the southern half of the country as well as northeastern metro areas seem to be the best places for investing in a property flip.
“If you are planning on making an investment, either by buying a home or by buying a rental property, these are really good markets,” says Winzer. “These are markets where you can make an investment, you are probably going to get a good return, and you are not taking an extraordinary risk.”
You can’t flip just one house – this is a long-term investment.
House flipping is far from a get-rich quick scheme. Most people don’t make their fortune by flipping just one or two houses. They have to be in the business for a few years, learning the trade and making a series of profits and losses to make the investment worthwhile.
“I have accepted that some flips will be great and others will not,” Marc Ferguson, mentioned earlier, says. “If I continue to purchase great deals, the averages will be in my favor. My strategy is to buy as many fix and flips as I can that meet my criteria and continue to average about $30,000 in profit on each property. If you are looking for that one house that will make $100,000, you may be looking for a long time.”
House flipping takes time and patience, so don’t give up too soon. You may have to get more involved to make your fortune, but as you learn from your mistakes and maximize your strengths, you can enjoy excellent earnings.