Reasons why renovating and “flipping” of properties doesn’t work
“Flipping” a house has recently become a trend; probably the biggest trend of the 2000s. However, in the attempt of making a profit, a lot of want-to-be realtors don’t pay enough attention to the basic principles of flipping. That’s why they eventually fail. Here are some essential reasons of why “flipping” or renovating properties doesn’t work.
Getting into the real estate business is both tricky and pricey. The cost of the property can become a real burden for investors. Even though little to no money funding claims are plentiful, finding a deal from a trusted vendor is tough. Furthermore, if the acquisition is funded by you, it usually means that you’re also paying interest. And even though interest on a loan is tax deductible, the deduction is not 100%. The money you’ll be spending on interest adds up to the money you’ll have to earn when selling; and that’s just to make things even.
The interest is eliminated when you pay cash, but then again, there will be further property holding costs for utilities and other taxes. Don’t forget to include renovation costs, too. If the house need a fixing and you want to sell it for a profit, the selling price has to exceed the mixed acquisition cost, renovation cost and property holding cost.
Assuming that you can still overcome all these burdens, keep in mind that there will also be capital gain taxes; these will cut backs on your overall profit, and if you’re not paying enough attention your whole property “flipping” attempt can fail.
Flipping and renovating houses is a time sensitive venture. Believe it or not, it takes a lot of time to find and purchase the right type of property. As soon as you’ve decided on a house, you’ll have to start renovating it before you can put it up for sale. For the property to comply with pertinent building codes, it has to pass inspection. After that, you’ll have to invest a considerable amount of time trying to sell the property.
In terms of profit, assuming that you can make a profit of 10% on a $50,000 house, your cash “prize” would be $5,000. A lot of people would say that rather go through all that trouble, getting a job is a lot easier because there’s less hassle and no risk.
Lack of skills
Skilled professionals and expert builders, like plumbers and carpenters are used to flipping houses. Many do this as a part-time job. They’re good at what they do; they understand the risks involved and they have what it takes to overcome them. When it comes to flipping, the real money is linked to sweat equity. If you enjoying renovating and you’re an experienced handyman, have the skills to hang drywalls and install kitchenware, then this job might suit you. However, if you’re considering hiring someone to do all this work, then your chances of making a profit with house flipping is slim.
Investing in real estate demands a lot of patience. Experts are well-aware of that and they usually don’t have an issue with waiting for the best deal. Novices however, are impatient. They rush out and they don’t do things themselves. They would rather hire contractors to do all the heavy lifting. If you’re not an experienced seller either, then you won’t make a significant profit either. Properties for investment in Turkey and in the US are plenty, however, the process of making those properties become sellable is tiring. Only a professional can understand that it takes time to make good money with house flipping.