The Time is Now for a New Flipping Hobby

Aside from the fact that house flipping is a fun and silly word to say, it also provides a serious investment opportunity. Any situation whereby an investor buys a house at a price way below the market value, renovates the house, and then sells it a higher price, can be considered flipping. And let's face it - HGTV's Property Brothers and Flip or Flop certainly make it look like a luxurious, albeit strenuous, job.

This type of real estate activity is usually done in inefficient markets because there is less risk involved, and greater reward. Investment opportunities are not only risky, but also intimidating, especially when you are dealing with something as fickle as the housing market. However, when done right, house flipping can prove to be incredibly lucrative, and could potentially turn into a fun new hobby. Consider the following advantages of this financial project:

• Become your own boss – The house-flipping venture is entirely independent, unless you choose to establish a team or partnership. This allows for schedule flexibility and complete discretion.

• Instant profits – In regards to house flipping, housing renovations do not need to be, and should not be, extravagant. In fact, many of the home improvements can be done by the investor. DIY projects are a flipper’s best friend. Ultimately, the money used to buy the house when combined with the renovation cost is usually still significantly lower than the new selling price.

• Few entry barriers – When compared to other business opportunities, house flipping has minimal entry barriers. There are few statutory guidelines that must be met in order to start flipping.

• Additional source of income – Often times, flipping serves the purpose of a “side job” for folks already employed full-time. It provides additional income, which means financial security and bigger pockets in the long run.

In order to succeed at anything, it is essential to not just be aware of the advantages, but also the disadvantages. Just like with any investment practice, there are risks involved in house flipping. These should not serve as a deterrent, but should definitely be given special attention. Consider the following disadvantages of flipping:

• High taxation – When a house is bought and sold within a year it is considered a a “business transaction”, which means the tax rate applied is higher than usual.

• High capital input – Purchasing and renovating houses is by no means cheap and the capital required to do this could quickly and easily lead to debt problems.

• High uncertainty – There is no way to predict how many flipped homes you will sell. In worst-case scenarios, the house stays in your name for so long that you end up having to sell it at a loss.

  

If you’ve been dabbling with the idea of flipping houses for some time now, but are hesitant to take the plunge, keep the suggestions below in mind.

Tips to Flip

• Select a builder. Since multiple renovations and remodeling services will be required, it is important that you consistently work with the same builder to avoid potential disasters. A quality custom home builder will give you an edge over your flipper competitors.

• Monitor the market. If people are not buying houses, then it is not the ideal time to invest in house flipping. This seems like common sense but staying up to date on the housing market and real estate trends is of the utmost importance.

• Research the neighborhood. Consumers will be willing to pay higher prices for houses in exceptional neighborhoods, which directly affects the outcome of your flipping project. On the contrary, homebuyers will not go over budget if the home’s location is not especially attractive.

• Pay attention to the transaction costs. If the buying and selling process of the home at stake will involve very high transaction costs, that may eat away at your profits, and should serve as a “red flag”.