Flipping and Flopping in Real Estate
Every time I change the TV channel, I see another reality show about flipping houses. Those people seem to be cashing in while I feel like I’m missing out on easy money! Honestly, how hard can it be? Signed Chip
Easy money? For heaven’s sake, no. Getting into the house flipping business is like opening that proverbial can of worms. While money can be made, I am sorry to report that it definitely does not come easily.
House flippers wear lots of hats: accountant, interior designer, general contractor, and more often than not, psychic. Most flippers will tell you that Excel spreadsheets for meticulous accounting are imperative at every step to turn a profit. A solid understanding of the current design trends and following the costs of in-vogue materials can be a guessing game. And then there’s construction. On those reality shows, the contractors are always so handsome, aren’t they! I think you know the reality of that one, and finding someone dependable is the true top priority. I don’t think I’ve ever seen a renovation project come in on budget, even doing it myself. You really have to cushion your construction budget for the unexpected, and 30% is not unrealistic.
Please also seriously consider the neighborhood. Is it up and coming? Will you be the most expensive house on the block? It’s your job to know how much the surrounding houses are selling for and be pragmatic. Go out and look at the renovated homes in the area to understand what the market can bear.
Remember there are many, many fees to house flipping. Factor each one carefully. You don’t want to lose your hard-earned profit because you forgot about the taxes. Here’s a shortlist of fees to remember: property taxes, insurance, utilities, title and escrow fees, and of course Realtor commissions, which as the seller, usually account for 6% depending on your agent.
So, have I scared you away? That was not my intention, but please know that reality shows are very rarely based in reality. House flipping is very hard and very risky work. It’s far from the glamour of drum rolls and house reveals. So is that can of worms worth opening? Let’s just say, for now, keep that day job.
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