When most people think of investing in real estate, they typically imagine being a landlord collecting rent. But one less popular yet enriching way to earn money from real estate is by flipping houses.
However, a lot of time and skill are required to successfully pull off these projects, which can quickly be overwhelming for newbies. You might have several questions, like should you clean up yourself or hire a professional cleaning team? When is the best time to enter the market? And how do you budget for your renovation?
If you’ve recently been interested in buying and remodeling fixer uppers for profit, this article is for you. We’ve outlined the top 3 potential issues of purchasing a fix and flip property to help you navigate through them. Let’s get started:
Top 3 Potential Issues of Buying a Fix and Flip Property
1. Limited Time
One of the biggest obstacles to buying a fix and flip property is that investors often need more time. Every day you own a house, you must pay certain expenses like taxes, utilities, and wages. Thus, you’re losing valuable financial resources if the property isn’t earning money. Since you can’t recoup the capital, you invested until you sell the house, holding a place for too long can be detrimental. Most experts recommend spending four to six months between purchase and resale.
2. Financial Support
Securing funding for your purchase can be tricky, especially if it’s your first house. Most traditional loans target homeowners who can afford to spread their payments over ten years or more. Unfortunately, investors looking to fix and flip don’t have that time.
On the other hand, fix and flip loans exist for such specific projects. However, they’re often short-term mortgages lasting for less than two years, with interest rates running up to 18%. They’re also often secured loans, where investors stand to lose their investment if they don’t meet their scheduled repayment. You should find an experienced private lender to finance your rental property investment to avoid entering a bad deal.
3. Poor Knowledge and Skill
Another potential issue investors often face with fix and flip houses is limited knowledge and skills. Sometimes investors think to turn a profit, they have to make major remodels that cost a lot of money and time, and they spend more money than they should on unnecessary projects. On the other hand, some people aren’t willing to hire the right help and might decide to renovate themselves when they’re not particularly handy with tools. The proper knowledge and skill can help your business succeed, so you need the appropriate education.
● Discounted Price
Despite the issues you might encounter with a fix and flip property, there are several benefits you can leverage. For example, since fixer uppers need work, owners often sell them at a discounted price. Thus, if you’re willing to invest time and money, you could wind up with prime real estate, especially if you buy one in the correct location. Of course, it all depends on having the right financing, so consider flipping houses with a private money lender.
● Customization Options
Another benefit of investing in a fix and flip is that you can customize the house to your taste. With a build-to-rent, you have to spend a lot of money to acquire the property and then make changes that could improve your ROI. However, fixer-uppers come at a lower price, so you can spruce them up with whatever money you save during purchase and still turn a good profit.
● Skill Development
As we highlighted earlier, rehabbing a property takes time and money. Thus it allows investors to gain a lot of skills. You can build your negotiation skills by constantly buying and selling properties, learning more about pricing materials, delegating tasks to different contractors, and managing your time better. If you’re willing to put in the effort, you can pick up a lot of knowledge that might be useful to you in construction, real estate, or related industries.
Rehabbing a rental property for profit is a lucrative rental investment, but it requires a lot of time, money, and skill. If you’re too hasty, you could enter the market at the wrong time, hire the wrong contractors, or spend too much money on your remodeling project. However, if you can avoid these pitfalls, you stand to earn big rewards and develop your real estate skills. Despite the risks involved, you can pull it off with the proper knowledge and team and build a successful house-flipping business. A professional property manager is one of the best people to have in your corner. They can connect you to the best contractors in the area, oversee renovations, and resell your property at the right time.