In recent years, the concept of flipping houses has become a point of interest for certain investors. The general idea of buying low and selling high is prominent in this process, and the ability to turn a property around in order to earn a high return can be tempting.
With certain television shows dedicated to the idea of flipping houses, the process can look easy to an outsider who has never done it before. However, it should be noted that flipping houses aren’t always as easy as it might appear on T.V. In fact, there is a great deal about flipping houses that many people don’t realize both in regard to the manner in which you can acquire a property to the type of expertise you need in order to be successful.
If you have an interest in flipping houses for a profit, here are three things that you should be aware of before you dive in and purchase your first property.
1. Types of Funding
When it comes to purchasing a property to flip, you have several options in regard to funding the purchase. While there are some investors who have enough capital to purchase a house outright, that isn’t the only way to acquire a cheap fixer-upper.
Many house flippers use hard money loans for such purposes. A hard money loan is a short-term loan that is generally issued by a private lender. Instead of basing the amount of the loan on your credit, the value of the property that you are looking to purchase will serve as the basis for the loan. More specifically, the lender will take into account the projected value of the property once the renovations have been completed.
If you are interested in this type of funding, you can find a great deal of hard money lending information that would be useful to know.
2. Time is a Factor
Many people don’t realize just how time-sensitive a flip can be. This isn’t the sort of project that you can start and then plan to work on every now and then until it’s done. Rather, as soon as the house is yours, the clock starts.
Essentially, the longer you are sitting on a loan or mortgage for the property you are flipping, the smaller your profit margins are going to be. Even if you have been able to purchase a property outright, the taxes that you will end up paying can severely diminish your profit.
3. DIY Increases Profit
When it comes to flipping a house, there is a great deal of hard work that will go into the project. Things like electrical work, plumbing, and laying flooring all require technical and practical skills. If you don’t have those skills yourself, you will need to hire a professional to do the job.
While hiring a contractor is a reasonable option for a house flip, it isn’t the best way to reap the highest profit. The more you can do yourself and do correctly, the higher return you will see when all is said and done.