Flipping houses is the process of buying houses at a lower price and selling them at a profitable rate. Since most real estate agents are aware of the market prices and availability of valuable houses, they often take advantage of this situation and flip houses. With successive profitable deals, some even turn into full-time house flippers.
While house-flipping can be a great way to make some profit during the ongoing season, it can be quite challenging too. New investors and amateur real estate agents often make this move without considering the details and risks involved, which can eventually lead to a major loss. Here are some reasons why flipping houses can be extremely challenging.
1. It’s Extremely Stressful and Time-consuming
Just like any other investment deal and property management, flipping houses can be extremely stressful due to the time, money, and effort it demands. If you have a full-time job or a business to handle, flipping houses can be a bad idea as you need to dedicate a significant amount of time. At times, the property may need rehabbing, which increases the amount of time you need to stay on site. The simplest of tasks that are supposed to take not more than an hour or two can force you to stay the entire day. Unless you have a lot of time and a flexible schedule, flipping houses can be extremely nerve-wracking.
2. Cash Flow Issues
To flip houses and earn a significant profit from them, you first have to put in a lot of money. If your financial situation is bleak, you may have to discard the plan of flipping a house. Even if you are considering the option of taking a home loan, it still is a major risk. Lenders often impose a higher interest rate for property loans. If you are unable to sell the house, you may end up in a lot of debt. Having deep pockets is necessary when flipping houses. The potential of losing a lot of money is real, and you have to be ready for it.
3. Increase in Property Taxes
While cash flow is definitely a major issue, the real challenge lies in managing property taxes. If you are buying a large property that is well-maintained and in good condition, you will be susceptible to paying property taxes. The process of flipping houses is a short-term investment, which obliges you to pay taxes on short-term capital gains. Depending on your income, you may be taxed 40% or more of the amount you make. Plausible swings in your income can also affect your tax bill when you are dealing with a short-term investment, i.e. less than a year.
4. Unexpected and Holding Costs
If you do not sell your house within the anticipated time period, you may have to keep paying your mortgage from your own pocket. Moreover, if you find some fault after buying a house, it can lead to a major loss, which is why the property investigators at ScopeOut suggest getting a detailed survey report on the property you wish to invest in. In the end, you can lose a lot of money. To prevent a financial loss and turn the situation in your favor, analyze the real estate market, make a plan, and choose the right house to flip. In this way, you will not only save money on repairs and renovation but also earn a higher profit.
5. Legal Issues
New investors are often unaware of legal issues and related costs. They assume that going through the legal procedure alone can help them save a lot of money. In reality, they are simply adding costs to their existing budget. At times, first-time owners rent their new property to tenants and become full-time landlords. However, if they are ill-prepared for the legalities that follow, they may end up paying money to negotiate with their tenants. This issue can also occur if the former owner hasn’t paid their mortgage.
6. Difficulty in Selling
Another major challenge that can disrupt the house flipping process is the difficulty in selling the property. A lot of amateur real estate agents make the mistake of flipping houses during the offseason. Moreover, if the property sits on the market list for a long time, its price will decrease by a greater margin.
When all these factors tie-up, you will lose a lot of money and time. If you are thinking of flipping houses, consider these aspects to avoid risks and get the best deal for your investment. Since this process can be a nightmare at times, dig deeper and find more information about the property and its hidden costs. If done right, flipping houses can help you make a fortune. On the contrary, being careless can push you into a major financial crisis.