The Risks & Rewards of Flipping Houses
Are you one of the millions of Americans who watch House Flippers, Flip or Flop or any of the other HGTV shows that show a home going from old and worn down to fresh and updated in a 30-minute segment?
You may watch and think, “I can do that!” However, as real estate professionals know, there is a lot more than just what is seen on these addictive shows. Home flipping is not for the faint of heart.
While statistics show that flipping houses can be a lucrative real estate investment strategy, it is not without a certain level of risk. According to ATTOM, a leading curator of land, property, and real estate data, “407,417 single-family homes and condos in the United States were flipped in 2022. That was up 14% from 357,666 in 2021, and up 58% from 2020, to the highest point since at least 2005.”
Not only does this report show that more houses are being flipped year after year, but the typical house flip generates a gross profit of $67,900 nationwide. This number, however, is down by 3% from previous years. Given these statistics, let’s break down the risks and rewards of flipping a home for those in the real estate world considering this action.
What Is House Flipping?
Let’s start with the basics.
House flipping is a business and real estate strategy where a buyer or investor purchases a home in need of work, usually both aesthetically and functionally, and then fixes the property to turn around and sell it at a profit.
The Rewards of House Flipping
There are several potential rewards to flipping a property including financial rewards, strengthening your real estate network, and learning new skills.
Make A Quick Profit
Arguably, one of the biggest draws to house flipping is the potential to make a fast profit. Based on current data, successful home flippers can make an average of 26.9% profit on flips. Depending on the location and condition of the home, a pretty profit can be made, especially if you’re flipping multiple homes in a year.
The average length of a flip is six months, so the profits of a home flip are remarkable considering the turnaround time.
Strengthen Real Estate Connections
As home flippers become accustomed to the market’s ebbs and flows they can make critical networking connections in the real estate industry. These connections will help in future deals and flips.
With each flip, buyers’ wants and needs become easier to anticipate and real estate professionals will recognize your work. Additionally, as home flippers become known in an area, they often become privy to off-market deals and investors willing to work with experienced flippers.
Depending on how involved the home flipper is in the physical work and decision-making process, they will quickly learn the right and wrong ways to upgrade a home. If you are serving as your own general contractor, you will quickly learn skills such as organization, communication, and general know-how of repairs and maintenance.
The Risks of House Flipping
With great reward often comes some level of risk and that mantra is very true in the world of real estate. Flipping homes can be very profitable but it can also be a huge financial risk and a stress-filled event.
While many home flips are very profitable, many financial pitfalls can occur throughout the process. From unforeseen expenses such as major repairs that are unplanned to investor issues, finances can be a huge issue in any flip. Often, unforeseen financial issues happen during foreclosures, private sales, or “as is” sales when a comprehensive home inspection is not completed.
Flipping homes is a fast-paced and stressful environment and not for everyone. The stress of meeting deadlines, finding the right subcontractors and doing everything within budget can be overwhelming.
Are you considering house flipping? Do your research and learn more about the real estate industry before you begin this endeavor. Greenwood Real Estate classes may be a good place to start to understand the ins and outs of the market, along with the laws that govern this industry.