The Risks and Benefits of Flipping a House

So you’re thinking of buying a house, holding on to it while the market appreciates, or putting it through a renovation in the hope of selling the property for more than you picked it up for.

If pulled off correctly, flipping a home can bring in a sizeable profit in a short amount of time. But it’s good to keep the risks and benefits in mind when you’re thinking about turning around a property.

To start, it’s good to keep in mind the biggest risk: falling short of selling the home above what you paid for it, plus any additional expenses such as renovations.

And as you’re crunching the numbers for a possible house-flip purchase, don’t forget to take into account the interest you’ll be paying on any financing you took out for the initial purchase, plus secondary expenses such as property tax and utilities for the length of time you’ll be holding onto the property.

For those keen to pick up their tools and tackle a renovation in the aim of adding value to the future sale price, remember that doing a renovation and then shopping around the finished product is a time-consuming venture. Even before you take the plunge, it can take months to find the right house to buy, then once it’s yours you’ll need to find time for renovations – which can easily last longer than planned – as well as extra tasks like inspections for building code standards. And it could take even more months to find a buyer once the property is ready for sale.

Another risk is over-estimating your abilities to find just the right house to flip. It isn’t always easy to pick out an undervalued home that can be turned around for a tidy profit.  It takes a keen eye and some decent research skills to find a diamond in the rough.

But don’t be deterred, as there are some real upsides to successfully flipping a home, aside from a boost to your bank account.

Repair, renovating or remodeling a home yourself will teach you valuable lessons into home construction and maintenance, providing spinoff benefits for possible do-it-yourself work at your own residence. Going through a home inside and out looking for problem areas to fix will give you a keen eye for spotting structural problems and health risks like asbestos and mold.

Flipping a home can also boost your contacts in the housing business, which could prove useful when buying or selling another home. You can expect to deal with realtors, insurance brokers, building inspectors, contractors and a range of other specialists when flipping a home – professional contacts you can potentially tap into for a future housing deal.

So don’t be deterred by the daunting prospect of flipping a home, just do your homework and keep in mind all of the potential upsides and downsides.