What are the pitfalls to avoid in the business of flipping homes?

What are the pitfalls to avoid in the business of flipping homes?
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Numbers speak for itself. During 2017, real estate investors in the US had flipped 200,000 homes. So, it becomes clear that the interest in home flipping is growing fast although it is only about 6% of all condos and single-family homes sold during that time. On the face of it, the business of flipping homes in San Antonio looks simple and easy – buy a house, make some cosmetic improvements to it to enhance its value, and sell it for a good profit. At least, you will find the option very lucrative for making quick money by looking at several TV shows that make the process look fast and fun. Despite all the noise about high returns from real estate, the business of flipping homes is not as easy as it seems.

Besides preparing well to take the first step in the right direction in house flipping, you must also avoid the pitfalls that can turn your dream of becoming a real estate mogul sour.


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Not having enough money

Not doing proper research about your financing options can land you in big trouble. How you will arrange or finances to meet the acquisition cost and the cost of renovating the property must be well-thought-out. Despite the claims of acquiring a property with low or no down payment, it will be tough to find a legitimate vendor. It means you must fall back upon mortgage and bear the interest.  Despite some tax deduction for the interests, you still must calculate the interest, principal, taxes, and insurance that you pay from the pocket, which you must recover from the sale proceeds to break even. Factor in the cost of renovations and the cost of holding the property, which all adds to some reasonable amount that you must have ready with you.

Trying to hurry flipping homes

Finding a property and buying it at the lowest possible price and then renovating it to make it fit for sale takes some time. So, you must be ready to devote time because hiring the services for supervising the renovation activity will only increase the cost. Your involvement in the process of making the property ready for inspection by complying with the building rules is essential. If you are unable to devote time or too much eager to sell the property, it can turn counterproductive, and you may have to wait much longer to get the price that you are looking for.

Poor knowledge about flipping homes

To locate a property at the right location at the right price, you must have enough knowledge about the market conditions and how the property could fare after going through an upgrade. Even if you get a dream price for buying the property, you must know the kind of renovations to do and the ones to skip.  Besides, you must know the applicable taxes and the laws related to zoning and have adequate marketing skills to sell the property on your own without involving any third-party.

Not having enough patience can be your undoing in house flipping business, and the wait is worth enough if you are confident about the merits of the property.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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