On the surface, flipping a house seems like an easy way to make money. The concept is simple enough; buy a home that needs a bit of work or one that’s severely underpriced, make improvements as necessary, then sell the home again for more than you paid for it. Do this a handful of times, and hypothetically, you could make a substantial line of extra income. In Texas, where real estate markets vary wildly, you could find dozens or even hundreds of opportunities to make your money back.
But is it so simple?
Realities to Consider
Flipping houses is more complicated than it might look at first glance. Before you move forward, you need to consider these realities about the process:
- You need capital. First, you need to be aware that substantial capital is necessary to fund this type of investment. In an ideal world, you’d have enough cash to buy a home outright, but it’s more likely that you’ll need to borrow at least some money to complete the transaction; even then, you’ll need a down payment. Beyond that, you’ll need money to fund repairs—even if you’re doing them yourself, you’ll need to pay for the raw materials you’re going to use. If you aren’t in a good financial position, flipping a home may be out of your reach unless you’re willing to bear substantial risk (more on that later).
- This isn’t for amateurs. Next, you need to know that flipping houses isn’t a hobby you can pick up in your free time, nor is it something you can learn on the fly. Making a profit on houses requires careful attention paid to a number of different areas, including real estate value, home repair knowledge, and time management; if you’re unfamiliar with these areas, you won’t be able to turn a profit—and you might end up losing money. It is possible to learn the basics of flipping houses, but it takes time, and you probably won’t make much on your first few deals.
- You’re incurring more than one type of risk. Flipping houses isn’t a safe investment the way bonds or mutual funds are. It’s true that real estate generally holds its value if you invest smart, but when you flip houses, you’ll be facing a number of different risks. For starters, you could wind up paying too much for a house at the beginning, ruining your chances of turning a profit. You could buy a house and wind up paying far more in repairs than you originally estimated, especially if you discover something new like rotted pipes or faulty electrical wiring. Plus, after you’ve made all the necessary repairs and improvements, there’s always the chance that the home won’t sell as fast as you hope it will.
- Exhaustive research is necessary. Before you do anything, regardless of how much experience you have, you’ll need to perform exhaustive research. You’ll need to dig into the local real estate markets to learn the home pricing trends in the area. You’ll need to figure out the potential future of home prices in the area. You’ll need to inspect your chosen house from top to bottom before making an investment, and you’ll need to work with contractors in advance to figure out what repairs will be necessary. On top of that, you’ll need to calculate how much profit you could potentially make, factoring in peripheral costs like insurance, mortgage interest, sales commissions, and unforeseen expenses.
- You’ll need to put the work in. The research is one thing, but you’re also going to need to put in a ton of work if you want your venture to be successful. Even if you use contractors to do the majority of the labor, you’ll need to step in to make the house presentable for potential sellers. You’ll need to find those contractors, secure your mortgage, figure out exactly what needs to be done, and do what it takes to make the home pretty enough to sell. This isn’t a job you can do from behind a desk.
- Finding the right property can take a while. Let’s assume you have the capital, the knowledge, the contacts, and the willingness to research and work; do you have the patience to wait for the right deal to come along? Flip-worthy houses aren’t abundant. It will take you a long time to find the “right” property (or you’ll sacrifice some potential profitability). Are you willing to play that waiting game? Are you willing to wait for the home to sell once your repairs are complete? A single flip will take months, or even years, to finish.
Should You Try Flipping a Home?
Those considerations are important, but what does it really mean to you? Should you start flipping houses? Answer these three questions to find out.
- Do you have expertise or access to expertise? Do you have any previous experience flipping houses? Are you a contractor who’s familiar with the complexities of home repairs or a real estate agent well-versed in the prices and processes of buying and selling homes? Alternatively, do you know people who could lend you this expertise?
- Are you prepared for the effort it demands? If you’ve read the article this far, you should have a solid understanding of how much effort is truly involved with the process. Knowing that, are you willing to move forward?
- Are you willing to take a risk? Now that you know the risks involved with this tricky investment method, are you willing to take those risks? Are you financially able to recover from them if things go south?
If you can answer “yes” to all three of these questions, you’re ready to flip your first home. If you answer “no” to any of them, it’s advisable to take a step back and reconsider your position. In any case, if you’re ready to start looking for a home or if you need help managing your existing properties, contact Green Residential. We’ll help you with virtually any of your Texas real estate needs.