Why Flipping Houses Is a Bad Idea—If You Don’t Have the Right Plan in Place
I’m sure that every veteran house flipper has found themselves questioning whether or not it was a good idea—I’m no exception. For me, flipping a house can feel like a rollercoaster sometimes, with dizzying highs and crushing lows. You may find the perfect investment property, only to discover termites in the basement. Or you could get an amazing deal on flooring, but then fail your inspection due to a minor error. At the end of it all, if you’re lucky, you can make a ton of money, but it usually takes years of experience to get there. That’s why flipping houses is a bad idea—if you don’t have the right plan in place.
Why Flipping Houses Is a Bad Idea
House flipping is stressful, especially if you don’t have a solid plan in place. Here are some of the biggest drawbacks to flipping houses.
It Can Be Expensive
Many people get into house flipping because they believe it’s less expensive than other investment opportunities—there’s the chance that you can buy a cheap house, do all the repairs yourself, and sell it for a massive profit, right? Unfortunately, as many novice house flippers learn the hard way, there are many more costs to factor in before you see any potential profits.
For example, even if you do the renovations yourself (which I’ll get into later), you still need to pay for materials, tools, and any required permits. You may also need to pay financing fees if you purchased your property with a loan, and most short-term real estate lenders charge steep interest fees. Then, for the duration of time that you’re holding the property (while you’re performing renovations, and then while the house sits on the market) you also need to pay for homeowners insurance, utilities, and property taxes.
Selling the house also comes with additional costs. You’ll likely need to pay a real estate agent’s commission for listing, showing, and selling the house, unless you choose to do all of it yourself. If you go DIY, you’ll need to pay for marketing materials (like signs, flyers, or business cards), listing fees, and open-house expenses. By the time you complete your first flip, you’re likely to find that all these extra costs add up to a much larger expense than you expected. That’s why it’s important to make a realistic budget based on real-world experiences, either by researching house flipping costs yourself or consulting with a veteran real estate investor.
It Can Be Time Consuming
If your only house-flipping experience comes from watching HGTV, you may not realize just how long it actually takes before that beautiful “after” picture can appear. Just finding and purchasing the right property can take months. Then, you need to renovate the house, either on your own or with a contractor. Using a professional will speed the process up, but the cost will quickly eat into your budget, so many house flippers try to do everything themselves as quickly as they possibly can. Next, you need to schedule inspections to make sure your renovations are up to code—and if any problems are found, you’ll need to spend even more time (and money!) fixing them. Last, the process of selling the property can often take much longer than rookie house flippers expect.
It’s also important to understand that almost none of this time will be spent idle. If you’re hoping to flip houses on the side while keeping a full-time job, you’re likely to spend all of your free time working on the property. In addition to time spent actively renovating the house, you also have to factor in commuting time—to the property itself, and to meetings with real estate agents and potential buyers—as well as the hours you’ll spend showing the property and preparing for open houses. If you don’t have enough time to dedicate to the flip, then you’ll end up needing to carry the property for much longer, and every extra month means more payments to lenders and utility companies. Flipping houses is a bad idea if you can’t devote a significant amount of time to completing the project.
It Can Be Hard Work
While it’s possible to flip a house that only needs minimal repairs or touch-ups, the real money is in purchasing and renovating distressed properties and selling them for a steep profit. This means you’ll need to do a lot of physical, manual work fixing up your flip. While it’s possible to hire professionals to do all of your major repairs, doing so will significantly decrease your profits, which is why most veteran flippers only use professionals for things that require licenses or special training, like electrical and HVAC work.
When you’re flipping a house, you’ll likely need to know how to do things like lay carpet, install sinks and toilets, and hang drywall, for example. That’s why it’s common to see professionals like carpenters, plumbers, and roofers flipping houses on the side for extra cash. If you don’t have any experience with this kind of manual labor, and you don’t have any connections in the industry to help you get a good deal on professional contractors, then flipping houses may be a bad idea for you.
It Can Be Competitive
Back before reality television brought house flipping into the cultural zeitgeist, the competition for investment properties was relatively low. If you were smart and knew where to look, you could easily find undervalued homes in good neighborhoods and snatch them up before anyone else caught on. Now, however, you’ll likely face steep competition for every decent investment property in your market. And it’s not just fellow small-time flippers, either—big names like Zillow have started flipping houses in select markets, with enough resources to find and buy all the best deals before independent investors even have a chance to bid.
Plus, once you’ve found and renovated a property, you’ll need to sell in a market that may be saturated with other flips. And since so many big investors are competing on the market with you, they’ll probably have much higher marketing budgets, making it more difficult for potential buyers to find your listing among the competition’s flashy ads. In order to stay competitive in the house-flipping market now, you’ll need a solid plan for finding leads and marketing to the right people.
How To Establish the Right Plan for Flipping Houses
If you’re anything like me when I got started, you want to flip houses so you have an independent source of income, relying just on your own skills and business-savvy and enjoying all of the fruits of your labor. However, all of the reasons why flipping houses is a bad idea can be avoided by joining the HomeVestors® team as an independently owned and operated franchise. With HomeVestors®, you’ll receive one-on-one mentorship from a veteran real estate investor who will coach you through your first flips and help you develop a competitive strategy for selling homes fast. Plus, you’ll get access to the UGVille® platform of proprietary real estate investing software, including a sophisticated lending portal, intuitive lead generation tools, and a simplified accounting and payment center. The best part is you’ll still be an independently owned and operated franchise, giving you the freedom to run your business your way.
Flipping houses is a bad idea unless you have a plan, and HomeVestors® can help. Contact us to learn more about the benefits of becoming a HomeVestors® independent franchise.
Each franchise office is independently owned and operated.