Flipping houses may seem like an easy and glamorous way to invest your money and build your wealth HOWEVER like all investments there is risk involved that you should be aware of before investing any money. I'm not trying to be pessimistic since there is big money and lots of financial benefits that go along with investing in real estate and flipping houses, this article will focus on the main pros and cons of investing in real estate and flipping houses.
Improve your Budgeting Skills: There are few investments that will provide a crash course in budgeting quicker than flipping a house. To be able to profit from your flip you be able to or learn to budget quickly or you will wind up quickly watching your profits go down the toilet. Being able to NOT ONLY set a budget but also stick to the budget is necessary skill required by any successful house flipper. being able to set and stick to a budget will also be a great help is all other finical aspects of your life.
Attention to Detail – Being able to pay attention to details is huge benefit for investors who flip houses, this skill will improve with every flip you do. The profit, when flipping houses is often made or lost in the small details that some people simply miss. Small details also tend to really make a difference when it comes to potential buyers, seeing a home that is properly cared for rather than just another house on their list of places to see can make the difference between getting and offer or not. The attention to detail skills you will and must learn to be a successful house flipper can also be great assets in other aspects of your life from your 9-5 job to your personal life.
Improved Credit Rating – Being able to successfully buy a house and flip it for a profit will greatly improve your credit score and future borrowing power since banks will take into consideration past loans you have taken out and paid back when you flipped previous properties. The more money the bank will lend you (known as borrowing power) for future flips will make a significant difference in the properties you can buy and profit you can make on each flip.
Evolving – No matter if you are a successful investor, entrepreneur, professional or you are a first time investor the better you are at evolving to changes the more successful you will be. In business things can change overnight, as an investor sometimes you need to be able to update or change your business strategy on the fly to be successful. This is especially true when flipping houses since tactics or techniques normally used by house flippers or learned from previous projects may not necessarily apply or be effective in your next flip. Being able to adapt to any situation is something you will learn from flipping houses and can be used to improve many other aspects of your life as a whole.
Potential For High Yield – Being able to successful flip a house can potentially be a very high yielding investment. There are few other investments that offer such a high return In your investment in such a short period. Of course all high yield investments tend to come with a higher level of risk so be sure to equally weigh the pros & cons before making any investment.
Below are a few of the main CONS of involved with flipping housed:
National or Local Drop In Real Estate Prices (Also known as a Bubble Burst) – If your interested in flipping houses I'm sure you have heard before of a real estate bubble which refers to a real estate market (weather it be national or local ) that is basically Inflated (meaning prices have been constantly rising) and is expected to bust. When a real estate bubble burst it caused all real estate in the effected area to drop simultaneously. Typical causes for a bubble burst can be more supply the demand (based on either increasing interest rates, increased lending rules or even over building by local developers) extreme or new tax increases and even increased crime rates can cause a sudden drop in the value of real estate and even make it difficult if not impossible to sell.
Potential For Loss – Flipping houses can be very profitable investment in a very short period however any investment that comes with a high rate of return typically has a high rate of loss. This is true with flipping houses, if you don't properly budget your investment money (which includes accounting for mistakes and time delays) several months of your time and effort (known as blood and sweat to entrepreneurs) can easily end up in a flip that in the best case makes a lot less money then your originally expected or breaks even or in worst case scenario even loses money.
Potential to OVER commit yourself – Over estimating your personal abilities will likely cause issues with your flip, for example many people in the planning stage will assume they can handle more of the improvement work then what they actually can, this not only delays the project but throws off your budget as well. You need to be realistic when it comes to the budget, time frame for completion and what improvement work you can do yourself. If you don't you can seriously impair your budget and the impact of the work you do as a whole. This can be the difference in making or losing money on your flip.
Before you decide to flip a house or for that matter make investment of any kind you should know that there is no such thing as a no risk investment, this holds especially true when it comes to flipping house or real estate investment. You cannot eliminate the risk all together but if you plan wisely, be realistic and work diligently flipping houses can be a very profitable long term business.