I watch the shows where someone purchases a property, renovates it and then tries to make a huge profit off of the sale. There may be some hiccups along the way on the show, but the story usually ends happily for the investor.
Sometimes after watching these shows I want to run out and buy five or six properties right away and make my own huge profits. But then I catch myself. I have been in the contracting business for over two decades, and I own rental properties, this is when I realize that it is not all easy.
There are many downsides to the house flipping fad. This is not for the weak of heart, this is a serious business in which tough decisions must be made on a daily basis.
Here is a list of some the negative points that most would be flippers are not aware of.
1. The process of finding and purchasing a suitable property that makes sense to invest in is a slow process. Many people want to buy the first house they see and they want it immediately. In reality this could take months. Be prepared to wait.
2. Many investors that are in the market to flip a property have no carpentry, plumbing, electrical or other trade skills. This means that they will have to rely on contractors to do the bulk of the work. Most people have no idea how to find a good, reliable contractor.
The process of finding decent contractors will usually take some time, so it should be started well in advance of the actual work start date. If you wait to the last minute to hire workers, chances are they will be sub par and inadequate for the job. Be prepared to do your homework.
3. In all my years of contracting I have rarely seen a job come in on budget. There are so many variables that the costs rise as the work is ongoing. The rule of thumb is to add 20% to your budget for unseen extras. On a large renovation that number should rise to 30% – 40%. It is amazing how fast a budget can be thrown out the window.
4. Be on board with the local officials and codes. Just because you want something done to your investment property does not mean that it will be allowed. I suggest meeting with any codes officials that will be involved with your project to work out any problems in advance. It is almost inevitable that what the investor wants will have to be adjusted to what the codes allow.
5. Be prepared to get dirty, everyone can offer some type of physical effort on their flip. I have seen people not want to physically touch their properties and this will keep them detached from the renovation, which can take them off the right track. Get dirty.
6. You must visit your flip house at least every few days, if not every day. You must see what is being done and how it is coming together. When you are absent problems can arise and may be resolved in a manner that you do not approve of. Also the quality of the work may be poor and you would not know.
I do not suggest that just anyone attempt to flip a house. It is very hard to make a profit if you are not serious and dedicated to your project. Along with investing your money you will also need to spend your physical energy and time. This is an investment that must be carefully thought over because your losses could be big if you are not ready for the challenge.