Home flipping is when someone buys a property and holds it for a short period of time and then sells it later with hopes of making a profit. Typically, a home held for 12 months or less and then sold is considered to be a flip. Oftentimes, these are distressed homes that need some rehabilitation and then are able to be sold for a profit.
With this said, home flipping can be a great way to invest in real estate. For some investors, home flipping is an excellent way to generate an additional revenue stream as well. Of course, it is certainly not as easy as many television shows make it look. We share some of the more common risks below.
Home flipping risks
1. Overpaying for the property
One of the biggest risks of home flipping is overpaying for the property. If you don’t factor in all of the costs involved in flipping a house, including repairs, renovations, and holding costs, you could end up losing money on the deal.
2. Underestimating repair costs
Another common risk is underestimating the cost of repairs and renovations. It’s important to have a professional inspection done before you buy any property, so you can get a realistic estimate of the work that needs to be done.
3. Taking too long to flip the house
The longer it takes to flip a house, the more money you’ll spend on holding costs, such as property taxes and insurance. It’s important to have a realistic timeline for the project and to stick to it as closely as possible.
4. Hiring bad contractors
Hiring bad contractors can be a costly mistake. It’s important to do your research and hire contractors who are licensed and insured. You should also get multiple bids before hiring anyone.
5. Unexpected problems
No matter how well you plan, there’s always the chance of unexpected problems arising during a home flip. These problems could include structural issues, mold, or other defects. It’s important to have a contingency fund in place to cover these unexpected costs.
6. Market downturn
If the real estate market takes a downturn while you’re flipping a house, it could be difficult to sell the property for a profit. It’s important to stay up-to-date on the market conditions and to have a backup plan in case the market turns against you.
7. Mortgage rates
Of course, rising mortgage rates continue to be a threat to the overall housing market. Needless to say, as rates continue to push higher, more home buyers are priced out of the market. Ultimately, this leaves less potential buyers for your home flipping project.
As with any investments, there are inherent risks with home flipping. In addition to consulting a local and knowledgeable real estate agent, there are several other ways to mitigate this risk:
- Do your research and understand the market.
- Get a professional inspection done before buying any property.
- Create a realistic timeline and budget for the project.
- Hire licensed and insured contractors.
- Have a contingency fund in place to cover unexpected costs.
- Stay up-to-date on the market conditions.
Are you thinking about investing in South Florida real estate? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, don’t forget to download the free Florida Home Search app for your smartphone or tablet.