4 Dangers in Flipping Houses
If you have recently purchased some real estate for investment purposes, you are in good company. Recent reports suggest that as many as 25% of these purchases are made by "investors" who plan on using the property for investment purposes only. If you hope to “flip” the property, you need to be aware of some potential risks that can ofttimes put a crimp on your profits.
Here are 4 quick things you might want to be aware of if you are considering flipping.
Keep the property for a few years and you may experience a surge in property taxes, especially if your taxes are reevaluated during that time. Some hot real estate markets have seen taxes nearly double in just 5 or 6 years.
You may have purchased a “fixer upper” at a bargain rate. Once your project is complete, will you be able to recover the expenses and make a profit — especially if the value of your renovated property is above those in your neighborhood? In addition, can you withstand a correction in real estate values?
Insurance and Mortgage Costs
You will pay more for homeowners insurance if you do not occupy the residence and have tenants. If you are financing the property, you know that your mortgage rate is higher as well.
A market saturated with rentals will mean that the rents you can charge will be less than what you had hoped to receive. In some "landlord unfriendly" markets, you are required to get special licensing in order to be a landlord or the legal rights of tenants could mean you have a lengthy and expensive battle in ridding yourself of a bad tenant. Will the lower income levels, coupled with the added expenses, drag your investment down?
Of course, you can limit your risks [and costs] by doing the majority of the upgrades yourself, appealing excessive property tax increases, and finding for yourself a trusted and dependable tenant.
It isn’t always easy flipping a home, but with a careful analysis, plan and sheer determination, it can still result in strong profits for you.