When the pandemic started last year, the market saw an increase in home sales across the country. The increase resulted from lower interest rates. This increase in sales also caused home prices to increase by June, which was an advantage for home flippers who bought homes before June.
Home flipping may appear to be easy, but it is not easy for inexperienced flippers who do not have the funds to buy homes outright. Some people may even consider buying land for sale, build a house, and sell it for a profit. But this isn’t considered home flipping since the practice is mainly buying a house and making cosmetic upgrades before selling the house again.
Additionally, land flipping is a fraudulent practice where buyers and sellers collude to inflate the price of a property beyond its market value.
To flip houses successfully, investors should avoid some mistakes to earn a considerable amount from their investments. Here are the mistakes investors should avoid.
No Available Funds
The initial expense when it comes to house flipping is the cost of acquiring property. It is not easy to find legitimate vendors offering financial options in buying houses. Additionally, investors should also consider that they are paying interest if they use these financial options when they buy a home.
While these options are tax-deductible, they are only limited to the interest is deductible for people who finance their house-flipping purchases. Due to this, investors should research their options before they dive into the practice of flipping houses.
Aside from the acquisition cost, investors should also consider the cost of renovating the home to increase its resale value. The sale price of the house should be higher compared to the acquisition cost and renovation cost. The capital gains taxes can also take a bit on the profit. It is quite challenging to flip houses if an investor doesn’t have available funds for the practice.
One important thing that investors have to keep in mind is that they have to enhance the house they bought to increase its resale value. Many skilled professionals, such as plumbers and carpenters, flip houses for additional income. Since they have the skills, knowledge, and experience in fixing houses, it’s easy for them to increase the value of houses.
People who have similar skills can reduce their expenses since they do not need to hire anyone to work on the house for them. Hiring a professional to renovate a house can reduce the potential profit an investor can get from flipping houses.
Last year, the median gross house flipping profit reached $70,500, which is around a return of 40 percent on the investment. While it was lower than the previous quarter, it is still a substantial amount that investors can consider.
Flipping houses take a lot of time since investors have to find properties with the potential to have a higher resale value. After finding the house, they need to renovate it, which also takes time. Investors with day jobs need to work on the renovations on weekends and evenings unless they are willing to let go of the profit by hiring professionals. But when they hire professionals, they still need to supervise the work to ensure they perform the jobs well.
After all the renovation work is done, the renovated house must go through inspections to ensure it complies with the building codes. If the renovations do not meet the requirements, the investor will need to work on it again to comply with the codes.
The last part is selling the property. This means the investor needs to market it in real estate market places. He also has to show the property to prospective buyers who may or may not like the house. Getting the services of a real estate agent will take a bite at the profits. In the fourth quarter last year, it took around 176 days before investors completed a house flip.
Due to this, it is important for the investor to be patient and have a lot of time to succeed in the industry.
House flipping needs skills and finances, but the investor should know how to look for the right property. He should know if the location and price are right. Without this knowledge, the investor might lose money, which is a big deal during a pandemic. Due to this, the investor should study the industry and market properly before joining it.
House flipping offers a good return if investors can avoid mistakes that will cause them to lose money on their investment.