The Dark Cloud in Real Estate


You can buy something old, do some repairs here and there and then sell for profit. This is how house flipping is done and it is good business.

What does it actually mean to Flip A House? What flipping a house usually refers to is when you find a house that is in major need of repair, or sometimes just minor but costly repairs. Either way, you see this house has enough repairs to make the house more valuable after you repair it so you can make a profit from it in the end. After finding a house you think you can afford to fix in a fair amount of time, you buy it. After you refurbish the house you then sell it for a price that can be compared to houses like it in the surrounding area or higher than the price you bought it for.

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There is a bad picture that has been painted about house flipping by greedy persons. Flipping a house is not about buy a house on its knees doing little or no renovations and making big bucks. This is irresponsibility.

When people refer to “flipping houses”, many are referring to the process of buying deeply distressed properties at auction, from foreclosure or bank short sales at a deep discount, then quickly “flipping” (selling) that property to a homeowner without much in the way of renovations. Although this kind of house flipping is popular and potentially lucrative, this not the kind of house flipping we are referring to here.

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That kind of “flipping” relies on quick sales and even quicker profits. Unfortunately at the same time, this kind of “flipping” has given the real estate investing industry a bit of a black eye in the process. Not only is that kind of flipping oftentimes irresponsible (reason #1 not to do it), but there is also less profit in it than traditional buy, renovate and flip style of house flipping.

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House flipping has been done for decades however the greed and greed has ended failing many. For one to indulge in a successful house flipping business they need to go back to the basic and avoid the mistakes being made currently like not having enough finance.

Not Enough Money

Dabbling in real estate is an expensive proposition. The first expense is the property acquisition cost. While low/no money down financing claims abound, finding these deals from a legitimate vendor is easier said than done. Also, if you’re financing the acquisition, that means you’re paying interest. Although the interest on borrowed money is tax deductible, it is not a 100% deduction. Every dollar spent on interest adds to the amount you will need to earn on the sale just to break even.

Paying cash eliminates the interest, but even then, there are property holding costs, such as taxes and utilities. Renovation costs must also be factored in. If you plan to fix the house up and sell it for a profit, the sale price must exceed the combined cost of acquisition, the cost of holding the property and the cost of renovations. Even if you manage to overcome these hurdles, don’t forget about capital gains taxes, which will chip away at your profit. (To learn more, read 4 Types of Home Renovation: Which Ones Boost Value?)

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