The Risks of Flipping Houses
Real estate investing is a field in which millionaires are made and lost on an almost daily basis. Most of the wealthiest investors in the world will agree that real estate is by far one of the most profitable fields in which you could invest. It also carries some of the biggest risks when it comes to investing at the same time. Real estate investments are large investments for the most part so when you loose on an investment such as this the losses tend to be much greater than when you loose in other investment avenues.
When it comes to flipping houses there are several risks that you should consider before diving in headfirst. While most of the risks are not something you can anticipate or plan for they are risks that you should be aware of and carefully consider before investing in a risky venture such as a property flip.
1) Fickle market. The real estate market is a fickle business. There are countless things that can greatly impact the likelihood that your investment will sell quickly or sit on the market for months on end and most of them are beyond your control Tornadoes strike nearby, crime happens nearby, a big company goes out of business, or a new company moves into the neighborhood. For better or worse all of these things have a profound impact on the real estate values nearby.
2) Neighborhood knowledge. It is very important that you take the time to get to know the neighborhood before you invest in a house you are planning to flip. You want to make sure that your vision for the home fits with the reality of the neighborhood and that the average income of the people in the neighborhood will be able to purchase the home you are creating.
3) Bursting bubbles. I’m sure you’ve heard all kinds of talk about the real estate bubble and how it seams to be bursting. While I’m not sure I put much stock in that I do know that heavy taxes in an area, new taxes in an area, and the encroachment of crime in an area can give you a sudden stream of competition for low prices while also making it more difficult in general for the property to sell.
4) Underestimating your own limitations. This is a big deal when it comes to risks in the business of flipping houses. You need to have realistic expectations before getting in of the time frame for completion, budget, and what you can do yourself and what you will need to hire professionals to handle. If you don’t you can seriously impair your budget and the impact of the work you do as a whole.
5) Underestimating prices. This is another big deal because you need to have realistic expectations when it comes to the price of supplies, tools, labor, and equipment that will be required in order to complete your house flip. Failing to have a reasonable grasp of current prices can have a devastating impact on your budget and how much you can actually accomplish during the course of your house flip.
6) Great profits. While some do not necessarily consider this a risk, excessive profits do work to impair your ability to pull out your wallet at the bank or anywhere else along the way. While we could be all so lucky as to call that a risk it is a very possible outcome of your house flipping attempt as long as you spend at least as much time in planning your flip as you do in executing it.
You should understand that there is no such thing as a no risk flip or a no risk real estate investment. You cannot eliminate the risk all together for the types of rewards that stand to be made through real estate investing and flipping houses. Tread softly, plan wisely, and work diligently in order to make your financial dreams a reality through real estate investing.