The Pros and Cons of House Flipping

The art of flipping houses has gained immense popularity in recent years, thanks to reality TV shows focusing on the realty tactic, not to mention the increasing interest of millennial homebuyers in earning passive income through real estate.

Data in 2021 shows that house flipping has generated an average gross profit of $65,000 in the United States. As of the first quarter of 2022, gross flipping profits have increased to $67,000, with 114,706 homes flipped.

However, it’s worth noting that not every property is a flip-worthy sale. Despite the increase in house flipping activities nationwide, the return on investments from house flipping saw a 20% year-over-year decline—from 51% in 2020 to 31% in 2021.

What Is House Flipping?

House flipping, sometimes called wholesale real estate investing, is when an investor purchases a property for the purpose of reselling it after a certain amount of time instead of buying it for personal use.

The idea of house flipping is purchasing low and selling high, which is also why some house flippers acquire a property at a discounted price and make refurbishments so they could sell it at a higher price without waiting for years. Old homes and foreclosed properties, or those being considered for foreclosure, are the most popular types of homes investors flip.

What Are the Benefits of House Flipping?

• Good source of profit

Flipping houses can make a lucrative business whether you do it part-time or full-time. A good number of real estate investors and home sellers make great profits from home selling, especially those who have enough capital to buy in-demand properties, such as those located near the business district, a vacation spot, etc.

Say you flip two to three houses annually that generate as much as $30,000 in profit each. This could easily match a full-time income or become a good side hustle. If you know a little about interior design, plumbing, or electrical works, you can save some money on repairs or upgrades since you don’t have to tap contractors for the job. People who flip houses also work on their flexibility and can work from anywhere.

• Personal Development

Home flipping could be a great avenue for learning. It can help you enhance your skills in sales, marketing, administration, time management, task delegation, budgeting, and negotiation. Also, if you’re passionate about home design, architecture, or anything related, house flipping can help you nurture your passion.

• Improves local community

There’s more to flipping houses than refurbishments. From a deeper and more sentimental perspective, houses in general help fulfill a dream of a family, which also helps improve the quality of life in a street or community. Neighborhoods with flipped homes also experience a slight increase in property value, making way for larger local property tax revenues that help the community maintain and improve schools, police, and fire services.

What Are the Risks of House Flipping?

• You may lose money

The higher profit potential of house flipping translates to a higher degree of risk. You can lose a lot of money just as fast as you earn it if you do not plan or calculate your numbers accurately. Homes at discounted prices can be secured via auctions or foreclosures, and it could also be a gamble if you don’t get the opportunity to conduct an inspection or see the issues ahead of time.

• Unexpected expenses

Even with careful planning though, some situations may still lead to unanticipated expenses, whether it’s a natural disaster, a problem with a contractor, a bug infestation, etc. That’s why it’s essential to have some breathing room on your budget.

• Market Fluctuations

The US real estate market is still rebounding from the market crash during the COVID-19 pandemic. And while flipping an undervalued property may be less dependent on market timing, market conditions still play a role.

If you are in a hurry to sell a property, house flipping may be a more challenging option, unless you already have a pending buyer or know someone who wants the exact type of house you’re planning to flip. Flipping houses takes some time, too. The rule is that a buyer should have the property for at least 90 days before they can sell it.

Should You Flip Homes?

If you are eager to have an extra source of income and also have enough money to buy a land or home at a discounted cost, then you can consider getting a property, working on some fixes (or not as it is not required), and putting it up for sale at a higher price.

Once you’ve decided to pursue house flipping, be sure to find a property within your budget, and do your research on the resale statistics of the property’s location. You may opt for a property in attractive neighborhoods such as Pittsburgh, Pennsylvania, Atlantic City, New Jersey, and Memphis, Tennessee, which are considered among the cities best for flipping a home in terms of return on investment.

The Bottom Line

Flipping houses can be a great business venture as long you know how to do it right. Tapping experts can help you with the entire process as well as keep you from getting caught up in pitfalls.

It’s ideal to invest in a more attractive area for families, such as those with a high or growing employment rate, low crime rate, and a wide range of school options for children. Knowing your market and sticking to your budget is a great way to get value for your investments.