According to a recent survey by Better Homes and Gardens Real Estate, 89% of investors in the U.S. are interested in putting their money into real estate. While real estate can potentially be a profitable investment opportunity, there’s a specific type of real estate investment that could actually end up costing you more than you think: flipping. Flipping real estate can be a costly mistake for any new investor, even if it’s a tempting option.
Why Flip In The First Place?
Many people are tempted into purchasing a “handyman special” property due to the lower starting cost. Just because one of the 250,000 foreclosed-upon homes has a low price doesn’t mean it’s a great investment. Low prices remove some of the barrier to entry that some people experience when looking to invest in real estate, making it a tempting option for first-time investors. Additionally, many people see examples of house-flipping on television, making them think that it’s a lower-risk, highly-profitable investment opportunity. However, these shows are edited carefully, and what you see isn’t always what you get. Need new locks? That locksmith is going to cost you. Real estate investment, especially flipping, can be costly if you’re not careful.
The Real Price Of Affordable Properties
If you’re not a practiced real estate professional, flipping can have a lot of expensive consequences. This real estate investment practice takes time to perfect, and you could run into many problems if you’re unprepared. Here are a few of the most common issues people run into when flipping houses.
- The competition is strong. Plenty of professionals nowadays make their money by flipping houses, and the market isn’t shrinking. Between 2012 to 2017, the commercial property remodeling industry grew by 11.7%, and it’s projected to increase steadily through 2022. The interior design industry alone generates $10 billion in revenues annually. This makes it harder for smaller, casual investors to compete.
- You could get hurt. The human body has more than 650 muscles. Chances are if you haven’t worked on major renovations or home improvement projects before, you’ll injure at least one of them.
- You could be buying someone else’s mistake. If a property is available for cheap, there’s likely a very good reason why. If you don’t know what to look for, you could be purchasing someone else’s investment errors. In addition, buying a foreclosed house for the price could bite you — almost 47% of foreclosed properties are still occupied.
- You might not find a buyer. Not everyone wants to purchase a home that’s been flipped; in fact, most people looking to buy houses want a new home or a home that won’t need work. If people realize you’ve flipped the property, they might not be interested in buying.
Affordable Real Estate Investment Alternatives
If you’re considering investing in real estate, make sure you know exactly what you’re getting into with the property you end up purchasing. If you’re looking at a fixer-upper, do your homework and get it properly inspected. This way, you’ll know exactly how much you’ll need to budget for renovations before you get started, and you can more accurately predict your overall profits. Alternatively, look at other methods of real estate investment that are lower risk, such as purchasing a property and renting the space. Be careful with your real estate investments to avoid a potential flipping opportunity turning into a major flop.