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Is It Worth Trying to Flip a House?

Written by Posted On Thursday, 21 November 2019 09:36
Is It Worth Trying to Flip a House? https://www.pexels.com/photo/white-and-red-wooden-house-with-fence-1029599/

On the surface, it seems like flipping houses is a good investment decision, and a way to generate wealth long-term. However, the nuances of flipping houses are less discernable, and it’s easy to lose money on a potential deal.

Still, the possible upsides are super appealing; if you find the right property, spend a few weeks fixing it up, and sell it for tens of thousands of dollars more than you paid for it, you could easily put yourself in a much more lucrative financial position. So is it worth it to try and flip a house?

Why Flipping Houses Is Often Unprofitable

Let’s start by examining some of the main reasons house flipping fails:

  • Lack of access to promising deals. The best houses to flip tend to be inexpensive relative to their valuations, and tend to have much potential upside; they’re either positioned in highly popular or rising neighborhoods, or can be fixed up with simple and inexpensive projects. The problem is, these unicorn-like deals tend to be few and far between, and the deals that do arise tend to be quickly scavenged by the most aggressive real estate prospectors in the city. Accordingly, it’s hard to find promising deals.
  • Underestimation of costs. New investors often severely underestimate the time and monetary costs of fixing up a house. They estimate 30 days and $15,000 of materials, but end up spending 90 days and $30,000 of materials. If their original projected profit was $20,000, the increased costs would cut that down to a mere $5,000—hardly worth it for 90 days of work.
  • Overestimation of buyer interest. On the other side, it’s impossible to overestimate buyer interest as well. If you fix the house up, but can’t find a buyer, you may be forced to sit on the home for much longer than you expected. You may also be forced to sharply lower the price, cutting into your profitability.

Now let’s look at ways to overcome these failure points in a series of respective sections.

Lack of Access to Promising Deals

Good deals are hard to come by, and you can’t create new opportunities from scratch. However, there are a couple things you can do to increase your chances of finding good opportunities. The first strategy is to become a real estate agent in your own right; these days, you can take real estate classes online and become formally certified as an agent in your state. Once you do, you’ll have access to far more real estate deals than the average person, and you’ll have first dibs on new opportunities that enter the market. As an added bonus, you’ll also develop a better understanding for the ins and outs of buying real estate, which means you’ll have a better chance at making accurate estimations (and better purchasing decisions).

You can also spend time networking with other real estate moguls in your city. Oftentimes, real estate investors cluster together in tight-knit networks, buying and selling among themselves. If you know the right people, you might get compelling offers more frequently.

Underestimation of Costs

When searching for a property to flip, it’s easy to get ambitious and severely underestimate the time and money it will take to get the house in sellable condition. However, there are some steps you can take to mitigate this risk:

  • Get more experience. First and foremost, get more experience in the industry. Work with a mentor, and tag along to their house flipping projects to learn more.
  • Always build in a buffer. Overestimate your costs so you’re less likely to be over budget later.
  • Acquire better connections. Find the best and lowest-cost contractors your city has to offer, and work with them regularly. They might be willing to provide you with extra discounts if you build a long-term relationship.

Overestimation of Buyer Interest

If the neighborhood isn’t as popular as you thought, or if your estimated valuation is off, you won’t be able to sell the house for a profit. This is a hard dilemma to solve, but you can start by getting more experience; again, working with a mentor here is ideal. You can also work on creating more conservative, pessimistic projections.

So is it worth it to try and flip a house? The short answer is yes, but only if you’re willing to put in the time and effort. Amateur real estate investors shouldn’t try to flip a house, and even experienced real estate investors should tread carefully. If you’re interested in making money with real estate investments, it’s usually better to stick to safer, more long-term investments; securing a rental property or a nice house in a promising area are typically better choices, especially for newcomers to the real estate industry.

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James Stevenson

Hi, My name is James and I've been involved in the property and real estate industry for 10 years now. I hope people will like to read about my thoughts and experiences in the industry and please contact me if you want to discuss my articles further!

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